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Where the proposed Social Security overhaul stands
Scripps Howard News Service


May 01, 2005

Washington - If your yearly paycheck averages more than $20,000, pay attention to President Bush's embrace of an arcane change in the way Social Security retirement checks are figured.

Bush didn't detail how he'd change Social Security's formula to a "means-based" system that cuts scheduled benefits for all but low-income retirees at Thursday's press conference. But a White House statement says the proposal would be similar to a "progressive indexing" plan advanced by Robert Pozen, a Boston investment manager who sat on Bush's 2001 Social Security commission.

Here is a Q&A look at the issue.

Q: What's progressive indexing?

A: Until Thursday, Pozen said, Bush had discussed the "dessert" of private Social Security accounts when "solvency is the spinach that needs to be eaten first."

Pozen's spinach would allow only the lowest 30 percent of wage-earners - those making $20,000 or less today - to have their initial retirement benefits calculated the way they are now, based on average nationwide wage increases over their own 35 best-paid work years. The other 70 percent of retirees would have their initial Social Security checks adjusted on a sliding scale for price inflation, which tends to increase much less over time than wages.

Q: What's the difference?

A: Progressive indexing would cut promised Social Security retirement benefits by 20 percent for today's 17-year-old who makes average wages throughout a career, Social Security Actuary Stephen Goss reports. Workers with larger paychecks than today's $36,000 average would see steeper cuts: 30 percent for someone making the equivalent of $59,000 today and 40 percent for anyone paid the equivalent of $90,000 on retiring in 2055, Goss calculates.

Q: Is there more?

A: Yes. Workers would see scheduled Social Security payments reduced again if they opt for the private accounts Bush stumped for on his 60-day tour that ends Sunday.

He would let workers age 55 and under invest up to 4 percent of pay diverted from the 12.6 percent Social Security payroll tax that workers and bosses split. On retirement, the plan reduces account holders' Social Security checks by any money diverted to the investment account, plus 3 percent after inflation. So account holders' scheduled Social Security benefits would be reduced not once but twice.

Q: What next?

A: Presidents propose and Congresses dispose.

But this president says he won't draft detailed legislation that's a target for critics to shoot down, so congressional Democrats aren't disposed to offer an alternative, reasoning that if Bush won't offer a bill, why should they.

That leaves it to Senate Finance Committee Chairman Charles Grassley, R-Iowa. By summer, he will offer a bill that achieves "sustainable solvency" - or keeps Social Security in balance at least 75 years - so it's there, as he puts it, for "Grandpa Grassley ... and my granddaughter when she retires 56 years from now."

He will start with some form of personal accounts, but "obviously I do fail" if the details cannot command majority support from the committee's 11 Republicans and nine Democrats, plus a filibuster-proof 60 senators.

Q: Can't the House go first?

A: House Republicans could ram through a bill to Bush's liking. California Republican Bill Thomas, chairman of the House committee in charge of Social Security, wants the Senate to go first, but may draft a bill by mid-June.

Q: What else is on the table?

A: A dozen plans drafted by people in and out of Congress are detailed on Goss' Web site,

Some divert payroll taxes to private accounts, others propose private accounts atop Social Security.

Some raise the retirement age in line with longevity improvements, others change the inflation formula or raise the payroll tax rate. One think tank would create private accounts by cutting other programs or borrowing $7 trillion.

And some plans put the maximum Social Security payroll tax back to 90 percent of total wages nationwide, or $140,000 instead of $90,000, where the payroll tax cuts off now. A bipartisan commission set the benchmark at 90 percent when it rescued a Social Security almost too broke to cut checks in 1983. But top wage-earner pay increased so fast since then that $90,000 now taps just 85 percent of U.S. paychecks.

Q: Wouldn't reduced Social Security undercut public support for the system?

A: Probably.

"I can already hear the drumbeat a few years from now as private-account proponents say that Social Security is such a bad deal, we should scrap what remains," says Robert Greenstein, director of the liberal Center for Budget and Policy Priorities.

Unchanged, Social Security's trustees and the Congressional Budget Office say the system can pay 70 percent to 80 percent of promised benefits out of payroll taxes even after exhausting the tax surplus it's collected four decades from now _ more than many middle- and upper-income retirees would see from progressive indexation.

Against that backdrop, lawmakers may take the advice E.B. White famously offered in a New Yorker cartoon caption: "I say it's spinach, and I say the hell with it."



E-mail Mary Deibel at DeibelM(at)

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