The Bush Push: The White House Continues to Promote Social Security Overhaul

The debate over Social Security has taken a new turn since President Bush proposed benefit cuts to keep the program out of debt, or, solvent.

Using something called "progressive indexing," Bush wants to reduce benefits for the middle class and the wealthy while maintaining or increasing benefits for the poor.

Some say that the plan is a response to Democrats who accuse Bush of pushing policies that disadvantage low-income Americans, and it is certainly a reply to the widespread charge that Bush’s personal savings accounts do nothing to address the programs’ solvency.

What is progressive indexing?

Progressive indexing refers to a sliding scale of benefits in which those with the lowest income receive the highest percentage of benefits and those with the highest income receive the lowest percentage of benefits. In other words, the benefits become progressively smaller or larger as one slides up or down the income scale.

More specifically, progressive indexing would change the rate of adjustment for initial benefits. Currently, the money contributed to social security is adjusted for the economy’s wage growth, which is about 1 percent faster than the rate of inflation. The Bush plan would apply the rate of inflation (the price index) to career earnings above $113,000 a year, resulting in fewer benefits for top earners.

Those with career earnings between $25,000 and $113,000 would be tied to a proportional mix of wage and price indexing, and those with earnings below $25,000 would continue to have initial benefits tied to wage growth.

The debate

Recalculating Social Security benefits in this way would completely restructure the program. Initially, the program was conceived as a social insurance program that allowed beneficiaries to collect what they had contributed. When President Franklin D. Roosevelt signed the Social Security Act in 1935, he created a federally-run retirement system for all Americans, not just the nation’s poor.

Progressive indexing, though, would cause middle-income and wealthy Americans to pay into the program but receive very little in return. For example, an American earning the average income of $36,500 a year would continue to pay the same amount in taxes but would receive just 26 percent of pay upon retirement. That’s 10 percent less than she would receive under today’s Social Security program. And someone who earns $90,000 a year and continues to pay the same amount in payroll taxes would receive only 12 percent of her current salary upon retirement. That’s 24 percent less than she would receive under the current program.

However, some say that benefit cuts are necessary to keep the program solvent. And if cuts are necessary, it may be fair to reduce benefits for those who have the greatest means. Some say that the current system is tilted in favor of the wealthiest Americans, who live longer and thus collect benefits longer.

From this point of view, Bush’s plan does not interfere with Roosevelt’s vision. Social Security is meant to keep elderly Americans out of abject poverty, and by cutting benefits to favor the lowest-income Americans, progressive indexing does just that.

But the cut in benefits would drastically affect the middle class as well. According to Peter A. Diamond, a professor of economics at the Massachusetts Institute of Technology, about two-thirds of people over 65 rely on Social Security for more than half of their income.

Money matters

In his speech on April 28, 2005, President Bush explained that our Social Security contributions are not kept in a lock box until we’re ready to retire. The government spends those dollars on things that we need now, like highways, Medicaid, and education - and wars.

Some Republicans argue that we should protect payroll tax dollars and invest them in the private sector. Being fans of private investment, they are also in favor of Bush’s proposal for private retirement accounts.

Whether they want to use or save Social Security contributions, both Republicans and Democrats recognize that the way we spend our money now affects our ability to pay for benefits in the future.

The war in Iraq, for example, affects all areas of the budget, including Social Security. As congressional committees begin to weigh the pros and cons of Bush’s plan, the House and Senate are working to pass a fiscal 2005 budget supplemental that would provide more than $81 billion for the war in Iraq. Supplemental appropriations bills are often overlooked, but they affect our saving and spending as much as the larger budget resolutions.

In essence, national budgeting is not too different from our personal spending and saving. We have to prioritize our needs and desires and make good choices about where our money goes today and in the future.

What are your spending priorities? Are you willing to give up some of your Social Security benefits to make sure that the total program remains solvent? Is it fair for what was designed to be an insurance policy to be changed to pay a greater percentage to the lowest-income Americans who live to retirement age?

What do you think?

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Article Posted on: 5/6/2005