Bush's 'Progressive Indexing' Plan for Social Security

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Madeleine Brand speaks to Jonathan Weisman of The Washington Post about President Bush's latest proposal for a Social Security overhaul — an idea called "progressive indexing." The plan would change the basis by which benefits are calculated for people at different income levels.

ALEX CHADWICK, host:

President Bush is visiting an auto plant in Mississippi today and talking again about Social Security. Last week, he endorsed an idea from the commission he had earlier established to study Social Security. It's called `progressive indexing,' and Washington Post reporter Jonathan Weisman explained all to DAY TO DAY'S Madeleine Brand.

MADELEINE BRAND reporting:

Jonathan Weisman, what exactly is progressive indexing? And tell us how it would work.

Mr. JONATHAN WEISMAN (The Washington Post): To close the gap between taxes expected to be paid into the Social Security system and benefits owed or promised, what this indexing system would do is freeze benefits for upper-income people--those who are making $90,000 now--exactly where it is and just raise those benefits with inflation. So in inflation-adjusted terms, those people would get the exact same benefit in the future that they are getting right now.

For the poor--currently, people who are earning about $25,000 or less--they would stay on the current system. That would mean that their benefits would rise as wages rise, and wages tend to rise faster than inflation. So their benefits would stick with the current system and they would be left basically unharmed. For everybody in the middle, your benefits would be cut. For those earning between $25,000 and $90,000, they would be cut progressively more as you go up that income scale.

BRAND: So let's take the average income, around $36,000 in today's dollars.

Mr. WEISMAN: Mm-hmm.

BRAND: How would that person be affected by this?

Mr. WEISMAN: That person would be progressively affected more and more as time goes on. In, let's say, 2045, 2050, that person's benefits would be cut by something like 20 percent. However, in those early years--and we're talking early in Social Security's life span--that person's benefits would actually be cut less than if the Social Security system was allowed to just kind of go bust. But in later years, that person would actually do better if the system was just allowed to go bust.

The Social Security Administration believes that around 2041, the Social Security trust fund will have expended all of its assets, all of its Treasury bonds. And at that point, it can only pay out legally what it receives in Social Security taxation. That would mean an across-the-board cut of about 25, 26 percent for everybody.

Now if President Bush would like to hold the poor harmless, that means that everybody else would get a slightly higher cut beyond that. So if you're middle-income looking beyond about the midpoint of this century, your cut will actually be slightly worse, and getting worse still, if you stuck to progressive indexing than if you just stuck to the regular system and let benefits fall with taxation.

BRAND: What do you make of critics of this plan who say that it's nothing more than a veiled attempt to gut Social Security? In other words, by transforming it into a, quote, unquote, "welfare plan for the poor," the goal would be to undermine the program as a safety net for everybody.

Mr. WEISMAN: Well, the argument goes that Social Security was not supposed to be a program for the poor. It's not an anti-poverty program or welfare program. It is supposed to be a system that you pay into, that is based on work and that everybody benefits from. And if you turn a broad-based social program into a program for the poor, it will lose political support.

I am not sure that this is true. This is to say that Americans are not community oriented, that they don't believe that their government should be supporting poor people--you don't see a lot of support for that. I mean, even with the welfare reforms of the '90s, we still have welfare programs, we still spend money on the poor. And a recent USA/Gallup poll, I think came out this morning, said that people are actually willing and would rather pay higher taxes than have benefit cuts, because I think that they are willing to support poor people in their old age.

BRAND: Jonathan Weisman is the domestic economic policy reporter for The Washington Post. He joined us from Washington.

Thank you very much.

Mr. WEISMAN: Thank you.

CHADWICK: And thanks to DAY TO DAY's Madeleine Brand for that interview.

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CHADWICK: Stay with us on DAY TO DAY on NPR News.

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