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 Partisan Social Security Claims Questioned
 
 By Jim VandeHei and Jonathan Weisman
 
  As the two political parties would have it, Social Security is either careening toward catastrophe or is on as solid financial footing as it has ever been. Both sides have marshaled -- or twisted -- facts and figures to back up those seemingly irreconcilable views.
 
 But at its heart, the debate over Social Security's finances is really a brawl over the way the nation's preeminent retirement security system will deliver benefits to generations not even born. President Bush's warnings that Social Security is going broke are designed to build support for a restructuring that would allow younger workers to divert part of their payroll taxes into personal investment accounts. The "magic" of compounding interest will save the system from deep benefit cuts, while giving investors a comforting nest egg and a greater return on investment than they currently receive through the system, Bush contends.
 
 Democrats, virtually unanimous in their opposition to such accounts, counter that the 70-year-old program for retirees and the disabled is fundamentally solid. Creating personal accounts would drive up government spending and debt while doing little to ensure the system's long-term solvency, they say. The main beneficiary of such accounts would be Wall Street "fat cats" profiting while low-income retirees suffer from the fickle fortunes of the stock market.
 
 To help readers cut through the rhetoric, The Washington Post interviewed budget experts on both sides of aisle, who challenged some of the most important claims made by Bush and his Democratic critics in Congress. 
 Bush Claim: Social Security  Is Going Bankrupt 
 On the stump, the president says Social Security will be bankrupt -- or, in more colorful moments, "flat bust" -- by 2042. The truth depends on the definition of "bankrupt."
 
 The Social Security Administration estimates that by 2042, the system will have depleted trillions of dollars worth of Treasury bonds piling up in its trust fund. At that point, by law, the system could pay out in benefits only what it would receive in Social Security taxes. 
 
 By then, the number of Social Security beneficiaries will have ballooned to 91.5 million people, from 47.9 million today, according to the Social Security Administration. For every beneficiary, there would be only two workers, who, under a 12.4 percent payroll tax, would generate nearly $960 billion less in taxes than are promised in benefits. At the moment of "trust fund exhaustion," benefits would have to be cut 27 percent from promised levels.
 
 But even then, monthly checks would be larger in inflation-adjusted terms than they are today. As long as there are workers paying taxes, there will be money flowing into the Social Security system to pay benefits. Moreover, all of those numbers are in dispute. The Congressional Budget Office, Capitol Hill's nonpartisan official scorekeeper, says the date of trust fund exhaustion is 2052, and at that point, the system still will be able to pay 80 percent of promised benefits.
 Trust Fund Is Disputed 
 Whether the date of exhaustion is 2042 or 2052 is of little consequence, Bush contends. "Payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust," the president said earlier this month.
 
 There is, in fact, a trust fund, but its significance is subject to debate. This year alone, the government will take in nearly $173 billion in payroll taxes that it will spend on programs other than Social Security. For those dollars borrowed from Social Security taxes, the Social Security Administration receives Treasury bonds equal in value plus interest. When Social Security benefits surpass Social Security taxes, between 2018 and 2020, the Social Security Administration will begin redeeming those trust fund assets, which will peak at nearly $6.6 trillion. 
 
 Once redemption begins, future administrations will have to make good on their IOUs, or risk a potentially destabilizing default on U.S. sovereign debt. 
 
 To redeem those bonds, the government will have three choices: raise taxes, cut spending or borrow more money. Those are the same choices the government would face even if there were no trust fund.
 Democratic Claim:  Personal Accounts Will Cost $4.9 Trillion 
 There is no arguing that individual accounts alone will cost taxpayers a lot of money initially as the government transitions from the current pay-as-you-go system to a partially privatized one. But it is impossible to slap a realistic price tag on the Bush plan until the president shares with Americans the specific benefit cuts and other changes that will accompany the new accounts. 
 
 As a result, the Democrats' $4.9 trillion figure is as debatable and politically motivated as Bush's $754 billion estimate, budget experts say. 
 
 The way Social Security operates is that current benefits to retirees and the disabled are paid by current payroll taxes from individuals and their employers. If people are allowed to divert a portion of their payroll taxes from the system to their own accounts, there will be less money coming into the government to cover those current benefits, which Bush has promised to pay in full. 
 
 Bush says the accounts would cost about $754 billion over the next 10 years. This might be true, but only because it is based on the program starting in 2009 and being fully implemented in 2011. The costs skyrocket when the new accounts are open to all. Senate Minority Leader Harry M. Reid (D-Nev.) says that it will cost $4.9 trillion  over a 20-year period, starting in 2009. 
 
 Vice President Cheney recently said the accounts would cost "trillions of dollars," which is probably the most honest, if vague, estimate, budget experts said. 
 Bush Claim: Personal Accounts Offer Greater Returns  
 "Young workers who elect personal accounts can expect to receive a far higher rate of return on their money than the current system could ever afford to pay them," Cheney told an audience at Catholic University last month. "For example, if a 25- year-old invested $1,000 per year over 40 years at Social Security's 2 percent rate of return, in 40 years she would have over $61,000. But if she invested the money in the stock market, earning even its lowest historical rate of return, she would earn more than double that amount -- $160,000."
 
 That calculation is based, however, on the premise that taxes paid into Social Security somehow have a fixed rate of return correlated to Treasury bond interest rates. 
 
 Instead, the rate of return in the current system is the product of complex formulas based on years worked, wages earned, the rate of wage increases over a worker's lifetime and inflation rates during retirement. Social Security offers low-wage workers a higher benefit relative to their tax payments than higher-wage earners get.
 
 According to a government actuary, a low-wage woman whose earnings rose over her career and who retired in 1985 will receive lifetime Social Security benefits equal to taxes paid into the system, plus 5.17 percent above inflation -- a rate of return more than 2 1/2 times the 2 percent Cheney cited. A married couple with one wage earner would  gain 7.38 percent. An average-earning single man who retired in 1985 will earn only 2.81 percent over inflation above what he paid into the system, a single woman, 3.74 percent.
 
 Such rates of return, however, will decline as the number of retirees rises relative to workers. A low-wage, single man retiring in 2029 could expect to get back what he paid in, plus 2.86 percent over inflation. An average female worker would get a 2.28 percent return on her investment.
 
 For virtually everyone, those future rates of return would fall  below the 4.6 percent gains the government actuary anticipates for money that would be invested in personal accounts under Social Security. But under the administration proposal, anyone investing in the accounts would lose 3 percent of their gains to help finance the new system. So beating the current system is not a sure thing.
 Democratic Claim: Plan Would Benefit Wall Street  
 Citing a study by University of Chicago economist Austan Goolsbee, Reid and many other Democrats argue that New York money managers will profit handsomely if millions of Americans start investing their payroll taxes in stocks and bonds. 
 
 But Goolsbee's study assumes a much higher cost to administer personal accounts than the Social Security Administration and many others do. If Bush sticks to the guidelines he conveyed to Congress, the federal government would manage the accounts centrally, and fees would total about 30 cents on every $100 for account holders, less than most Americans pay to maintain their mutual funds today. 
 
 Bush supports offering only a small menu of stock and bond indexes to choose from, which probably would limit the number of transactions people make and therefore hold down administrative costs. 
 
 "It certainly does not appear something Wall Street would salivate over in terms of fees," said Robert Bixby, executive director of the Concord Coalition, a bipartisan budget watchdog group. 
 Bush Claim: Personal Accounts Offer Individuals Greater Freedom  
 "It's your money," Bush told thousands of supporters recently at the University of North Dakota. "It's money you can decide to leave to whomever you want." This is partly true.  
 
 Under the current system, retirees and the disabled collect a monthly check based in part on lifetime contributions. When they die, so does their claim to the money they paid into the system. The Bush plan would, for the first time, allow individuals to bequeath the money stored in personal accounts. 
 
 But there is a hitch. To prevent people from emptying their personal accounts at retirement, Bush would require everyone to either purchase an annuity, which creates steady income until death, or set up regular payments from the account to maintain an income that exceeds poverty. If people fail to make a choice, the government would automatically enroll them in an annuity.
 
 And annuities die when a person dies, so that money could not be passed on. 
 
   

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