From The Boston Globe, 5/4/05:
http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/05/04/not_rich_not_poor_watch_out?mode=PF
Not rich? Not poor? Watch out
By Robert Kuttner
THERE IS one useful thing about President Bush's ''progressive
indexing" proposal for Social Security.
It finally makes explicit what we suspected -- that Bush intends
benefit cuts for most American workers in order to finance his
privatization plan.
Privatization, let's recall, requires either new taxes or increased
government borrowing or benefit cuts -- you can't spend the same money
twice.
Under the present system, payroll taxes pay the cost of Social
Security retirement checks.
Bush would divert some of that tax money to optional private accounts.
Consequently, privatization would worsen Social Security's modest
projected shortfall by trillions of dollars unless benefits are cut.
''Progressive indexing" is a disguised benefit cut, but the disguise
is pitifully transparent.
Here's how it works:
Under the present Social Security system, both workers and retirees
are protected against inflation.
During the four decades of my working life, Americans' real incomes
and consumer prices have gone steadily up.
So if I retire, say, in 2016, I will get an initial Social Security
check based not on my income when I first earned a paycheck in 1966
but on my lifetime contribution to the system adjusted for current
prices.
And the inflation adjustments continue after I retire.
(This cost-of-living guarantee is why Social Security beats any
private alternative.)
Bush wants to keep the postretirement adjustments but slash the
inflation adjustments that occur during a person's working life except
for the poorest Americans.
The result would be a steep reduction in benefits for middle-class
workers, since their anticipated retirement benefits are steadily
eroded by inflation.
People's initial Social Security check would be progressively reduced
relative to what current law promises.
According to the calculations of Dean Baker, an economist at the
Center for Economic and Policy Research, the Bush plan would guarantee
only the bottom 30 percent of wage earners the benefits they get under
the present system.
Currently, that's people making less than $22,000 a year.
Everyone else would get a benefit cut, and the cuts would increase
over time.
For example, someone with an income of $36,500 -- roughly the median
-- would get a 13 percent benefit cut by 2030, a 21 percent benefit
cut by 2050, and a 40 percent cut by 2080, depending on when
retirement began.
An upper-middle-income earner with a current income of $90,000 would
get steeper cuts: 24 percent by 2030, 41 percent by 2050, and 60
percent by 2080.
And these cuts would apply whether or not you diverted part of your
payroll taxes to private accounts.
These would be cuts in the guaranteed part of the benefit.
Since affluent people are less reliant on Social Security, the
proposed reductions as a share of total retirement income would
actually cut deepest for the middle-income earner -- a 14 percent cut
in total anticipated retirement income by 2050, according to Baker.
Another irony:
The plan to cut benefits doesn't bring the Social Security system any
closer to long-term balance, which was Bush's prime rationale.
Since the money saved by the benefit cuts would go to underwrite the
gap caused by the proposed private accounts, the traditional part of
the system would actually be further from long-term solvency than
under present law.
Greg Anrig of the Century Foundation calculates that Bush's private
accounts, even with the benefit cuts, would still require additional
borrowing of $4.9 trillion during the first 20 years.
Why did Bush finally admit the need for benefit cuts?
His privatization plan has not been getting good reviews.
His own political base includes people worried about fiscal
irresponsibility.
His strategists evidently calculated that of the three possibilities
-- higher taxes, greater borrowing, or benefits cuts -- the last
option would be the most palatable if it could be camouflaged as
merely a technical change in indexing for inflation and its impact
postponed for decades.
Judging by the White House spin, there is one other coy reason.
By retaining the present benefit structure for the lowest-income
wage-earners, George W. Bush can present himself as a friend of the
poor.
_____________________________________________________
Harry
.
|
