| May 2012 | ||||||
|---|---|---|---|---|---|---|
| S | M | T | W | T | F | S |
| 1 | 2 | 3 | 4 | 5 | ||
| 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| 13 | 14 | 15 | 16 | 17 | 18 | 19 |
| 20 | 21 | 22 | 23 | 24 | 25 | 26 |
| 27 | 28 | 29 | 30 | 31 | ||
Last month I noted a method which has been discussed, by which Social Security could be made solvent. Quoting Wall Street Journal editorial board member Susan Lee:
If benefits were indexed to prices however, Social Security would, at this very minute, be in balance over the long-termthe system would be permanently solvent. Not only would future revenues equal future costs, but there would be a surplus!
Indexing for price changes alone would protect retirees, new and not-so-new, from inflation, thereby maintaining purchasing power.
By indexing on wage increases rather than price increases, Social Security benefits were increasing faster than prices, year after year—giving Social Security recipients the equivalent, not just of yearly salary raises, but of yearly promotions to new pay grades. It explains why the system was going bankrupt.
In last month’s post I observed:
It is encouraging that what Lee is proposing isnt some pie-in-the-sky plan that will never get a chance to be implemented. Its part of a plan that has been proposed by the Presidents Commission to Strengthen Social Security.
Even so, I figured the approach described by Lee was a great idea that was unlikely to ever see the light of day. However, it is now getting a major push from the administration:
The Bush administration has signaled that it will propose changing the formula that sets initial Social Security benefit levels…
Under the proposal, the first-year benefits for retirees would be calculated using inflation rates rather than the rise in wages over a worker’s lifetime. Because wages tend to rise considerably faster than inflation, the new formula would stunt the growth of benefits, slowly at first but more quickly by the middle of the century. The White House hopes that some, if not all, of those benefit cuts would be made up by gains in newly created personal investment accounts that would harness returns on stocks and bonds.
By indexing increases in benefits to prices, benefits would still continue to rise, so as to maintain their purchasing power, and the Social Security system, instead of presenting a crisis, would become solvent.
