"Benefit Offset"

Was reading the instant analysis of the State of the Union by Washington Post Associate Editor Robert G. Kaiser when he mentioned this:

Even more curiously, a "senior administration official" who briefed reporters on the Social Security proposal earlier today disclosed details of the White House plan that I don't think will play well in Peoria. Most significantly, this official revealed that most or all of the earnings from new "personal" or privatized accounts will be paid not to the holder of the account, but to the government. The senior official called this a "benefit offset." It's one way to finance the creation of these private accounts, but it's going to cause quite a political stir, I think.

I recommend that you read the explanation of all this that my colleague Jonathan Weisman is writing at this moment.

He's refering to this:

Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system.

So, if I understand this correctly, if the funds in Social Security make 3 percent, and your personal investment makes 4 percent, you only get that extra 1 percent from the government.

In effect, the accounts would work more like a loan from the government, to be paid back upon retirement at an inflation-adjusted 3 percent interest rate -- the interest the money would have earned if it had been invested in Treasury bonds, said Peter R. Orszag, a Social Security analyst at the Brookings Institution and a former Clinton White House economist.

"I believe you should be able to set aside part of that money in your own retirement account so you can build a nest egg for your own future," Bush said in his speech.

Orszag retorted: "It's not a nest egg. It's a loan."

So in essence this plan does turn into the government investing money in stocks and bonds to try and get a better rate of return, only the government will pass along the risk to future retirees. Do well, and the government still reaps its rewards. Fail, and it's a push for the government, but you come out on the losing end in a big way.

This idea, by the way, was proposed by Clinton (without the risk to workers) and soundly thrashed by Republicans.