President George W. Bush has finally put some meat on his long-standing but vague exhortations to reform Social Security – proposing to cut future benefits for all Americans who earn more than $25,000 a year. We commend the president for exempting the poorest workers from his proposed cuts. But his plan would still work a major – and unnecessary – hardship on middle-income wage earners.
The White House predicted Bush’s proposal would solve 70 percent of a $11 trillion funding gap it predicts Social Security will face by 2080. (Projections by the nonpartisan Congressional Budget Office predict a much smaller shortfall that wouldn’t begin until at least 2052.)
Under Bush’s plan, workers who earned an average of $25,000 or less per year over their careers would continue to see their Social Security benefits rise according to the current formula, which computes benefit levels based on wage growth. Anyone earning more than $25,000 would see gradual benefit reductions, with those earning $113,000 or more taking the sharpest cuts because their benefits would rise only along with consumer prices, which historically increase at a slower rate than wages.
Those cuts in benefits would apply even to workers who did not opt for the private accounts proposed by Bush. Workers who did divert part of their existing taxes into private accounts would receive additional cuts in their benefits – which might or might not be offset by the earnings on those private accounts.
We doubt that most Americans will be willing to accept the cuts proposed by Bush – and in a March 11 editorial we proposed a much less painful way to buttress Social Security’s finances. It would be much fairer for Congress to recognize that Americans are living longer and healthier lives and raise the retirement age to 68 for workers born in 1966 or later, as proposed by Sen. Chuck Hagel, R-Neb. Under Hagel’s plan, early retirement at reduced benefits would still be available at age 62, and the disabled would receive full benefits regardless of when they stopped working.
Additionally, we’d gradually raise the earnings ceiling on Social Security taxes from the current $90,000 to $100,000 over five years, in addition to other already scheduled adjustments. These two modest changes would almost certainly ensure the solvency of Social Security through 2080, though future adjustments could be made if unforeseen circumstances warrant.
Americans born in 1966 already have a retirement age of 67 under Social Security. We think the great majority of them would rather work one more year before retiring than risk smaller benefits in their old age.
