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Thursday, June 02, 2005
Could Progressive Price Indexing Close the Shortfall?
The CBO report on Social Security reform options released last week mentions that the progressive indexing of benefits could completely eliminate the 75-year Social Security shortfall. This projection is even more favorable than the numbers which are being used by the White House in support of the plan. The progressive price indexing plan would index the benefits of the top 30 percent of wages earners by price growth rather than wage growth, index the benefits of the middle 40 percent of wage earners by a combination of wage and price indexing, and index the bottom 30 percent by their current wage-indexing.
One problem however is that CBO's estimates differ from those of the Social Security Actuary, which claims, based on different economic assumptions, that solvency would not be achieved within 75 years. Instead, they claim that even with this plan, the shortfall would only be reduced by 70 percent. (Repealing the 2001 and 2003 tax cuts, on the other hand, would more than make up for the Social Security shortfall -- see this report).
And the Center on Budget and Policy Priorities has recently reported that the SSA's claim that progressive price indexing could shore up 70 percent of the Social Security shortfall, is false. The Pozen progressive price indexing plan calls for reductions in disability and survivorship benefits, which the President has not claimed to support. Their report states, "About one-sixth of the improvement in solvency under the Pozen proposal comes from reductions in disability benefits... A similar amount of the solvency improvement under the Pozen plan is the result of reductions in benefits for survivors." Since the President does not support this, the actual amount of the shortfall which would be closed, the CBPP estimates, would be closer to 59 percent.
Posted by Becky Lewis
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