More on Progressive Indexation
May 4, 2005
With progressive indexation now the focus of the president's push for solvency,
some reports have declared that the idea is "gaining traction" in Congress; several
senators have already incorporated progressive indexation into drafts of reform bills,
and Democratic senator Joe Lieberman (CT) has said that he is "interested in the idea."
Below is a description from CQ Today of how the idea works and political reaction to it.
With progressive indexation now the focus of the president's push for solvency,
some reports have declared that the idea is "gaining traction" in Congress; several
senators have already incorporated progressive indexation into drafts of reform bills,
and Democratic senator Joe Lieberman (CT) has said that he is "interested in the idea."
Below is a description from CQ Today of how the idea works and political reaction to it.
"Inflation has historically lagged behind the growth of wages by about 1.1 percent,
Pozen says.
"The White House described Bush's proposal as 'a sliding-scale benefit formula
similar to the Pozen approach.'
"Liberals say Pozen's plan is little better than establishing price-indexing for all
workers' benefits.
"'The core problem is, if you do a plan that places major weight on benefit
reductions, no matter how progressive, that plan is going to have very large benefit cuts
for middle-income families,' said Jason Furman, a senior fellow at the liberal Center on
Budget Policy and Priorities.
"Many Democrats have said an overhaul should include tax increases, either by
raising the cap on wages subject to Social Security's payroll tax or by reversing some of
the tax cuts passed under Bush.
"Furman also argued in a March 21 analysis of Pozen's plan that reducing
benefits for middle- and upper-income workers but not for lower-income workers would
lead to Social Security resembling a welfare program, weakening its political support.
"Pozen dismissed that argument in an interview April 27, saying wealthier
workers understand that Social Security must be restructured."
The arguments against progressive indexation, however, fail to take into account
that the president sees it as a plan to be implemented in conjunction with PRAs. The
change in scheduled benefits that will affect middle-income families would be offset by
income from their PRAs. Additionally, political support needn't be weakened by a
switch to progressive indexation. Higher-income workers will still come out ahead of
currently scheduled benefits if they are able to take advantage of a large personal
retirement account option.
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