There is one useful thing about President Bush's ''progressive indexing" proposal for Social Security. It finally makes explicit what we suspected -- that Bush intends benefit cuts for most American workers in order to finance his privatization plan.
Privatization, let's recall, requires either new taxes or increased government borrowing or benefit cuts -- you can't spend the same money twice. Under the present system, payroll taxes pay the cost of Social Security retirement checks. Bush would divert some of that tax money to optional private accounts. Consequently, privatization would worsen Social Security's modest projected shortfall by trillions of dollars unless benefits are cut.
''Progressive indexing" is a disguised benefit cut, but the disguise is pitifully transparent. Here's how it works:
Under the present Social Security system, both workers and retirees are protected against inflation. During the four decades of my working life, Americans' real incomes and consumer prices have gone steadily up. So if I retire, say, in 2016, I will get an initial Social Security check based not on my income when I first earned a paycheck in 1966 but on my lifetime contribution to the system adjusted for current prices. And the inflation adjustments continue after I retire. (This cost-of-living guarantee is why Social Security beats any private alternative.)
Bush wants to keep the postretirement adjustments but slash the inflation adjustments that occur during a person's working life except for the poorest Americans. The result would be a steep reduction in benefits for middle-class workers, since their anticipated retirement benefits are steadily eroded by inflation. People's initial Social Security check would be progressively reduced relative to what current law promises.
According to the calculations of Dean Baker, an economist at the Center for Economic and Policy Research, the Bush plan would guarantee only the bottom 30 percent of wage earners the benefits they get under the present system. Currently, that's people making less than $22,000 a year. Everyone else would get a benefit cut, and the cuts would increase over time.
For example, someone with an income of $36,500 -- roughly the median -- would get a 13 percent benefit cut by 2030, a 21 percent benefit cut by 2050, and a 40 percent cut by 2080, depending on when retirement began.
An upper-middle-income earner with a current income of $90,000 would get steeper cuts: 24 percent by 2030, 41 percent by 2050, and 60 percent by 2080. And these cuts would apply whether or not you diverted part of your payroll taxes to private accounts. These would be cuts in the guaranteed part of the benefit.
Since affluent people are less reliant on Social Security, the proposed reductions as a share of total retirement income would actually cut deepest for the middle-income earner -- a 14 percent cut in total anticipated retirement income by 2050, according to Baker.
Another irony: The plan to cut benefits doesn't bring the Social Security system any closer to long-term balance, which was Bush's prime rationale. Since the money saved by the benefit cuts would go to underwrite the gap caused by the proposed private accounts, the traditional part of the system would actually be further from long-term solvency than under present law. Greg Anrig of the Century Foundation calculates that Bush's private accounts, even with the benefit cuts, would still require additional borrowing of $4.9 trillion during the first 20 years.
Why did Bush finally admit the need for benefit cuts? His privatization plan has not been getting good reviews. His own political base includes people worried about fiscal irresponsibility. His strategists evidently calculated that of the three possibilities -- higher taxes, greater borrowing, or benefits cuts -- the last option would be the most palatable if it could be camouflaged as merely a technical change in indexing for inflation and its impact postponed for decades.
Judging by the White House spin, there is one other coy reason. By retaining the present benefit structure for the lowest-income wage-earners, George W. Bush can present himself as a friend of the poor.
In an inventive column titled ''Bush as Robin Hood," John Tierney, the newest conservative columnist to grace the op-ed pages of The New York Times, wrote that ''Mr. Bush raised a supremely awkward question for Democrats: Which party really cares about the poor?"
Of course, all that Bush's plan does for the poorest wage earners is to leave the present system intact. But middle-income earners would really get whacked. One could turn the question around on Tierney and the White House: Who really cares about the middle class?
Robert Kuttner is co-editor of The American Prospect. This column originally appeared in the Boston Globe.
