Political Blunder. Bush Attacks SS Benefits for Middle Class

We finally have Bush's social security proposal. Though we do have those who are in the $300k per year crowd at which level we normally see a typical Bush economic proposal kick in, and he has gotten away with numerous tax breaks for this crowd, this just looks like bad politics and desperation from a lame duck.

It is all based on the belief that if you can turn social security into a welfare means tested system, you can eventually gut it with the type of tricky playing off of constituencies like we see with GOP tax redcuction proposals. Bush even pretends belatedly to be a man of the little people, making under $20k per year.
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Hitting the Middle Class, Again


As he moved into the home stretch of his 60-day Social Security road show last week, it became clear that President Bush had saved the worst for last.

Mr. Bush endorsed a proposal that would take a huge bite out of the Social Security retirement benefits for the middle class, claiming that would close some 70 percent of the system's financing gap. That figure is almost certainly overstated. Under the proposed reductions, young workers who now earn about $36,000 would face a 16 percent cut; those earning about $58,000 would face a cut of 25 percent, and those earning $90,000, 29 percent. People not yet in the work force would face even larger reductions.

Mr. Bush says these cuts would enable the system to continue paying benefits at the current level to the 30 percent of recipients who now make less than $20,000. But fully two-thirds of retirees rely on Social Security for more than half of their income. Moreover, the Bush plan gives the false impression that the wealthiest beneficiaries would bear the most pain. That's not the case. The wealthier one is, the lower the percentage of retirement income coming from Social Security, so even a big cut has little impact. By 2075, an average worker's benefit cut would equal 10 percent of pre-retirement income; a millionaire's reduction would be only 1 percent.

Worse, if Mr. Bush succeeded in creating private accounts, these newly proposed cuts would be only the first whack at retirement benefits. Workers who opened private accounts would also see their government benefits reduced by one dollar for every dollar invested - plus interest, computed at 3 percentage points above inflation. That would occur even if a private account performed miserably. In the end, the Social Security checks would be minimal - or nonexistent - for millions of Americans.

But Social Security can be strengthened without cuts as blunt and inflexible as the ones Mr. Bush proposes. Let's start by incorporating Americans' longer lives into the formula for Social Security benefits, ending the need for continual increases in the retirement age. To account for the life expectancy of today's average 35-year-old, for example, adjustments could be made now that would reduce the benefit in 2036 by about $300 a year. A chunk of the Social Security shortfall could also be closed by linking life expectancy to income level. The affluent live longer than the poor, and the gap is growing.

Politicians also have to face the hard truth about taxes. Raising the payroll tax by a mere three-tenths of a percentage point - starting 10 years from now and adding tiny increments over the succeeding 20 years - would be fair and lucrative, without being too steep or too sudden. It would also be fair to raise the cap on wages subject to the Social Security tax to about $150,000 from the current $90,000.

President Bush's overall approval rating and his marks for his handling of Social Security have declined since he put privatization at the top of his agenda. The American people are trying to tell him that there are better ways to go. He obviously can't hear them, but we hope Congress can.


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