Most would see their benefits calculated on a sliding scale that reflects changes over time in average national wages and prices. For those with average career earnings above $113,000 a year, their benefits would be calculated completely by the changes in prices over time, which rise more slowly than wages.
Across all income categories, the Pozen Plan would still see benefits growing from where they are today. But some, especially for wealthier workers, would grow more slowly.
“You’re basically taking away the larger share of Social Security benefits, establishing minimum benefits that are guaranteed,” said Leonard Burman, a national recognized tax expert and professor at Syracuse University, who warned that Social Security might begin to look more like a traditional welfare program. “There’s a concern that you would undermine support for the whole system. People think they’ve earned their benefits.”
The AARP, the lobby for seniors, strongly opposed the idea of progressive indexing when it was last seriously discussed in 2005, and it still does.
“We support retaining wage indexing in Social Security,” said Cristina Martin Firvida, the director of financial security for AARP.
Its more immediate concern, however, is Boehner’s proposal to change the cost-of-living calculation.
“If the concern is that we are inaccurately reporting inflation, as experienced by retirees and the disabled . . . then we’ve been looking at the wrong market basket for 40 years,” Martin Firvida said.
That’s because the current system sets adjustments based on rising costs in a basket of goods purchased by active workers, whose payroll taxes pay for current retirees.
“Workers tend to be younger, healthier, and therefore have fewer health care expenses,” she said. “We all know that health care outstrips (consumer) inflation year after year.”
Federal Reserve Chairman Ben Bernanke weighed in on this debate Wednesday, noting in a news conference that economists view the chained approach to calculating inflation as a more accurate indicator.
“However, whether that is better or appropriate for Social Security indexing or not, I think that is ultimately a political decision,” Bernanke said. “I suppose a rejoinder would be that neither then CPI or the chained CPI may necessarily be a particularly good measure of the cost of living for Social Security recipients, so those are the kinds of questions that Congress is going to have to deal with.”