Bush's Alternative Proposal Would Cut Social Security Benefits 60%!

[Itsthetruth]

Economic Policy Institute
Economic Snapshot for February 9, 2005

Proposed Social Security price indexing would slash benefits

The Bush Administration has spoken favorably about substituting price indexing for wage indexing, a change that was a centerpiece of Plan 2 of the President's Social Security commission. Under this change, benefits would no longer reflect improvements in the country's standard of living, but would just be indexed to prices. It is hard to overstate the effect of that substitution on hypothetical future benefits.

Recent research by the non-partisan Congressional Research Service (CRS) sheds light on this issue. The CRS estimated what the effect on current Social Security retirees' benefits would have been if initial benefits had been calculated based on increases in prices—using the consumer price index—instead of increases in average national wages.

Figure 1 shows that, with a price indexation formula, retiree benefits would have been cut substantially. Under the current wage indexation, the Social Security benefit for a person with average earnings over one's lifetime and retiring in 2005 would be $15,336 per year, replacing 42% of the average worker's income. If, however, price indexing had been used instead of wage indexing, that same 2005 retiree would receive only $6,180 per year, replacing just 17% of income. In other words, as the figure shows, a change from wage indexation to price indexation would have meant a 60% cut in Social Security benefits for today's retirees.

CRS also determined how this change would affect the elderly (people aged 65 and older) living in poverty in 2003.2 As shown in Figure 2, in 2003, 3.6 million elderly, or 10.2% of the noninstitutionalized elderly, lived in poverty. If Social Security benefits had been calculated using price indexation, an additional 7 million elderly would currently be living in poverty, bringing the total to 10.5 million, or 30.4% of the elderly.3

A shift from wage indexing to price indexing may sound innocent, but would impose dramatic benefit cuts on retirees and, as a result, substantially increase poverty among the elderly.

[On the Road]

1. It's Part of the Plan

Stay on the offensive. Throw as much as possible against the wall and see what sticks. Even if private accounts are dead, Bush might win on the CPI question. It sounds so innocuous -- what could be wrong with adjusting for inflation?

[Itsthetruth]

2. This Battle Is Just As Important

I agree. And we ought to hold the politicians feet to the fire on this. If the "private accounts" scheme goes up in flames don't be fooled into thinking the battle to defend social security is over. Hardly. This could be Bush's backup plan "B".

It's interesting that few if any members of the Senate are commenting on this. Have you read any statements by any Senators exposing and opposing Plan "B"? Perhaps some think they can declare a "victory" if they defeat private accounts while preparing to surrender on this other grand scheme for massive benefit cuts.

[Ganja Ninja]

3. By all means Mr. Bush cut Social Security by 60%.

Then watch as 60% of the people that voted Republican in the last election refuse to ever vote Republican again.

I'd love to see him do this. I have 20 years to go until I retire. By that time the GOP will be on the ash heap of history and the Democrats will have restored the program.

[Itsthetruth]

4. Don't Count On That.

Don't count on that! What if you're wrong?

And if you're right, and Bush's alternative benefit cut proposal is adopted and than reversed in 10 or 20 years you will still experience a major cut in benefits.

Do the math!