Tuesday, May 31, 2005

WaPo Editorial on progressive indexing of Social Security benefits

...The current system ties benefits to average wage growth during the worker's career. This approach was neither carved in stone nor part of the original Social Security system.


Instead, until the 1970s, Congress dealt with the issue by periodically increasing benefit amounts for existing and future retirees. In 1977, lawmakers made those changes automatic, indexing initial benefits to wage growth and recalculating benefits after retirement to reflect increases in the cost of living.

Tying initial benefits to wage growth lets retirees share in the improved standards of living to which they contributed. But because wages generally increase faster than the cost of living, wage-indexing is also enormously costly: It accounts for close to half of the projected increase in costs through 2075. Simply switching from wage- to price-indexing would more than take care of Social Security's solvency problem. But Mr. Bush is proposing something less drastic; this is where the progressive part comes in.

Retirees would be divided into three categories beginning in 2012. The lowest tier (average career earnings of $20,000 or less in today's dollars) would continue to have benefits calculated based on wage indexing; their scheduled benefits would remain the same. The highest tier ($90,000 and above, again in today's dollars) would have benefits calculated through price indexing; their promised benefits would be cut substantially from what they would have been under a wage-indexed system. The middle tier would have its benefits calculated under a sliding-scale combination of the two approaches. (Mr. Bush's Proposal: Washington Post Editorial)

As Porkopolis has noted before, this idea is tantamount to Killing the Golden Goose because it adds another layer of progressivity on an already progressive structure.


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