Press Release Health and Social Programs Inequality Workers

"Progressive" Social Security Benefit Cuts Would Fall Heaviest on Middle Class

May 02, 2005

Contact: Karen Conner, (202) 293-5380 x117Mail_Outline

May 2, 2005

"Progressive" Social Security Benefit Cuts Would Fall Heaviest on Middle Class

For Immediate Release: May 2, 2005 

Contact: Patrick McElwee, 202-293-5380 x110

The "progressive" Social Security benefit cuts endorsed by President Bush in his press conference last week would actually hit middle-income workers hardest, according to a report from the Center for Economic and Policy Research (CEPR). Average workers, who today would make about $36,500, retiring in 2080 would lose over 25 percent of their retirement income under the plan. In contrast, relatively well-off workers, who today would make $90,000, retiring the same year would lose less than 12 percent – and possibly as little as 7 percent – of their retirement income.

"This plan for cutting Social Security benefits, billed as ‘progressive,’ is actually regressive," said economist Dean Baker, author of the report. "Middle-class retirees would be hurt the most since they are going to feel the pain in their pocket books much more than those at the upper end of the wage scale."

The benefit cut endorsed by the President is referred to as "progressive indexation" by proponents. This terminology refers to the fact that the lowest paid workers would be protected from cuts and that high-income workers would lose a greater portion of their Social Security benefits than middle-income workers. However, since middle-income retirees depend much more heavily on Social Security than those with more money, this cut represents a higher percentage of their total retirement income.

Combined with the private accounts also proposed by the President, this plan would have an even more regressive impact. High-income workers could use private accounts as a loophole to avoid the full effect of the cuts. The President’s plan for private accounts treats the money placed in those accounts as a loan to be repaid from retirees’ guaranteed benefits. Over time, though, these benefit cuts would shrink high-income workers’ guaranteed benefits below the level needed to pay back the loan. Since the President has not proposed a way to collect this money from other sources, high-income workers could effectively shield money by placing it into a private account.

For all workers, the benefit cuts would phase in over time. Under current law, Social Security benefits keep pace with wage gains. This plan would freeze benefits for the highest income workers in inflation-adjusted terms. Benefits for middle-income workers would continue to grow in real terms, but would no longer keep pace with wage gains. This implies a substantial cut in benefits compared with the current system.

To access the report, click here


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