BCT Editorial – 5/4/05

This page was last updated on May 4, 2005.

Hard ball; Editorial; Beaver County Times; May 4, 2005.

I completely disagree with President Bush on his regressive indexing proposal for Socialist Security. Though low-wage workers always tended to make out a little better than higher-wage workers, you could argue Socialist Security was pretty close to a straight retirement. You could make this argument because initial benefits were governed by your individual taxes over your working life and everyone’s benefits increased according to the same formula.

Regressive indexing strips away all pretexts and unmasks Socialist Security as a retirement welfare system.

Below is a detailed critique of the subject editorial.

“Democrats are in big trouble on Social Security’s solvency. President Bush’s first pitch on addressing that problem was a 100-mph fastball on the outside corner of the plate.

“In other words, all Democrats could do was gape at it.”

[RWC] Not true. As they have with every Bush proposal, Democrats bashed it.

“In his prime-time news conference last week, the president endorsed, at least in principle, an idea called ‘progressive indexing,’ which, if adopted, would address about 70 percent of the $4 trillion, 75-year funding gap Social Security faces.”

[RWC] From here on out I will refer to “progressive indexing” by its true name, “regressive indexing.” There is nothing progressive in a government program that confiscates money from people who earn it and gives it to people who didn’t.

“According to Larry Eichel of The Philadelphia Inquirer, progressive indexing would work this way:

“At present, Social Security payments are based in part on how much average wages rose during a person’s working career. This is known as wage indexing.

“Another way to calculate payments would be to switch to price indexing, which would dramatically reduce benefits because prices historically have risen more slowly than wages.”

[RWC] I believe the author is confused. To the best of my knowledge, averaging your highest 35 years of earnings will continue to be the primary factor governing your initial benefit.

The indexing discussed here refers to the method used to determine benefit increases after your initial Socialist Security benefits are set at retirement. Currently, your benefit increases are governed by wage indexing, which rises faster than the cost of living (prices). Using wage indexing is one of the reasons for Socialist Security’s solvency problems.

The statement about price indexing dramatically reducing benefits is misleading. Price indexing would slow the rate of benefit increases to match the economy’s cost of living increases. That means your purchasing power would remain constant, which is supposed to be the reason for Socialist Security cost of living adjustments. COLAs based on wage indexing cause increases to rise faster than the cost of living.

“Eichel reports that progressive indexing, which was developed by investment executive Robert C. Pozen, combines the two. If it were to be adopted, the poorest 30 percent of retirees in the decades to come would receive their Social Security benefits using wage indexing while those in the top 7 percent would see their payments determined via price indexing. The benefits of those in between the top and the bottom would be determined by blending both indexes.”

[RWC] The author failed to note a couple of important points about Mr. Pozen. Pozen is a Democrat who contributed to John Kerry’s 2004 campaign and he voted for Kerry. Pozen has also written papers for the liberal Brookings Institution. Pozen also supports personal accounts in Socialist Security.

I believe the author failed to note these points because it would make it clear President Bush is already compromising with Democrats. That makes a recommendation below more difficult to justify.

“This method has the advantage of being progressive in that low-wage workers are not punished. That’s important because they need every cent they receive. And not to be gruesome, but they also tend to die earlier relative to high-wage earners.”

[RWC] I don’t understand the punishment comment. Switching everyone to price indexing would allow everyone to keep pace with inflation. How would that “punish” low-wage workers? The whole point of COLAs is to maintain purchasing power, not increase it.

“It also is an acknowledgement that the federal government already provides huge retirement subsidies for middle- and upper-income Americans through IRAs, 401(k)s and other programs, Eichel reports.”

[RWC] What “retirement subsidies?” While it’s true IRA and 401(k) contributions are protected from federal income taxes at the time you contribute, the income from these plans is taxed as regular income when you withdraw money. In other words, your income taxes on these plans are deferred but not eliminated. Though I guess this is technically a “subsidy,” I have difficulty referring to it as such because everything you get out of these plans you earned. That’s not true for beneficiaries of regressive indexing.

Wages contributed to IRA and 401(k) plans are still subject to the Socialist Security and Medicare taxes.

While the editorial talks about “huge retirement subsidies for middle- and upper-income Americans,” it fails to note many low-income Americans pay zero federal income taxes and some even get so-called “rebates” courtesy of the earned income tax credit. That’s made possible by those same “middle- and upper-income Americans.”

“Bush’s fast ball was so well thrown that Democrats could only respond by sputtering the stale party line.

“That’s not good enough. Some hard decisions must be made in regard to the viability of Social Security and how it will be financed. Although progressive indexing is not exactly pain free, no solution is. No matter how you look at it, something and somebody has to give.

“If the president wants to push progressive indexing, he needs to drop his proposal to establish personal accounts. He must do so if for no other reason than it does not address Social Security’s solvency. Instead, it exacerbates the situation. Instead of lobbying for personal accounts, Bush ought to look into ways to expand use of 401(k)s to low-wage workers.”

[RWC] Let’s get this straight. President Bush compromised by proposing regressive indexing yet he must compromise yet again by dropping personal accounts. Let’s remember that Democrats have made no proposal other than “no, no, no.” Did House Minority Leader Nancy Pelosi (D-CA) contribute to this editorial?

The last sentence is incredible. The editorial urges President Bush to drop personal accounts, then says President Bush should find ways to make it easier for low-wage workers to build nest eggs they would own, control, and could bequeath upon death, exactly what personal accounts would do. As I’ve asked before, do Times editorial writers read what they write, or do they really believe readers are complete idiots?

“With his backing of progressive indexing, the president changed the dynamics of the game. It will be interesting to see if the Democrats change their game plan or stick to their losing ways.”

[RWC] I’m not sure how this changes anything for the better. President Bush always said he was open to ideas from the left; his support of regressive indexing merely confirms he meant what he said.