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A Gut Punch to the Middle
By PAUL KRUGMAN
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.
Beyond that, it's a good bet that benefits for the poor would eventually be
cut, too.
It's an adage that programs for the poor always turn into poor programs.
That is, once a program is defined as welfare, it becomes a target for
budget cuts.
You can see this happening right now to Medicaid, the nation's most
important means-tested program. Last week Congress agreed on a budget that
cuts funds for Medicaid (and food stamps), even while extending tax cuts on
dividends and capital gains. States are cutting back, denying health
insurance to hundreds of thousands of people with low incomes. Missouri is
poised to eliminate Medicaid completely by 2008.
If the Bush scheme goes through, the same thing will eventually happen to
Social Security. As Mr. Furman points out, the Bush plan wouldn't just cut
benefits. Workers would be encouraged to divert a large fraction of their
payroll taxes into private accounts - but this would in effect amount to
borrowing against their future benefits, which would be reduced accordingly.
As a result, Social Security as we know it would be phased out for the
middle class.
"For millions of workers," Mr. Furman writes, "the amount of the monthly
Social Security check would be at or near zero."
So only the poor would receive Social Security checks - and regardless of
what today's politicians say, future politicians would be tempted to reduce
the size of those checks.
The important thing to understand is that the attempt to turn Social
Security into nothing but a program for the poor isn't driven by concerns
about the future budget burden of benefit payments. After all, if Mr. Bush
was worried about the budget, he would be reconsidering his tax cuts.
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