Krugman on Bush's Latest Social Security Plan

When I first heard a news summary about Bush's press conference, they said his latest proposal would cut future benefits of the wealthiest. I thought, finally, something that makes sense (although to me it makes more sense to simply raise the cap on earnings for SS withholding). But now Paul Krugman reveals the truth behind the latest proposal, and it really smells. Read it, from the NY Times.

This'll get you started:

By now, every journalist should know that you have to carefully check out any scheme coming from the White House. You can't just accept the administration's version of what it's doing. Remember, these are the people who named a big giveaway to logging interests "Healthy Forests."

Sure enough, a close look at President Bush's proposal for "progressive price indexing" of Social Security puts the lie to claims that it's a plan to increase benefits for the poor and cut them for the wealthy. In fact, it's a plan to slash middle-class benefits; the wealthy would barely feel a thing.

Under current law, low-wage workers receive Social Security benefits equal to 49 percent of their wages before retirement. Under the Bush scheme, that wouldn't change. So benefits for the poor would be maintained, not increased.

The administration and its apologists emphasize the fact that under the Bush plan, workers earning higher wages would face cuts, and they talk as if that makes it a plan that takes from the rich and gives to the poor. But the rich wouldn't feel any pain, because people with high incomes don't depend on Social Security benefits.

Cut an average worker's benefits, and you're imposing real hardship. Cut or even eliminate Dick Cheney's benefits, and only his accountants will notice.

I asked Jason Furman of the Center on Budget and Policy Priorities to calculate the benefit cuts under the Bush scheme as a percentage of pre-retirement income. That's a way to see who would really bear the burden of the proposed cuts. It turns out that the middle class would face severe cuts, but the wealthy would not.

The average worker - average pay now is $37,000 - retiring in 2075 would face a cut equal to 10 percent of pre-retirement income. Workers earning 60 percent more than average, the equivalent of $58,000 today, would see benefit cuts equal to almost 13 percent of their income before retirement.

But above that level, the cuts would become less and less significant. Workers earning three times the average wage would face cuts equal to only 9 percent of their income before retirement. Someone earning the equivalent of $1 million today would see benefit cuts equal to only 1 percent of pre-retirement income.

In short, this would be a gut punch to the middle class, but a fleabite for the truly wealthy.