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Social Security News
Private Investment Accounts, Progressive Indexing
Proposals Explained by Budget Writers
In 2013 workers will be allowed to use up
to 4% of their Social Security taxable earnings; indexing
allows poorest to get more
 Feb. 4, 2008 – To the shock of many, President Bush
again called for private investment accounts for the Social Security
program in his 2009 budget. Below is the rationale for the proposal as
explained in the budget. And, also an explanation of “progressive
indexing” proposed as part of a solution to restore Social Security to
sustainable solvency.
Strengthening Social Security
Because of the increase in the number of retirees,
increasing life expectancy, and the resulting decline in the number of
workers relative to the retiree population, Social Security benefit
payments are projected to exceed the program’s dedicated cash income
beginning in 2017. This mismatch between benefit payments and cash
income must be addressed, and the sooner it is addressed, the more
moderate and fair the changes to the program can be.
The President is committed to strengthening Social
Security and supports a bipartisan reform process in which all
participants are encouraged to bring options for strengthening Social
Security to the table.
The Budget reflects the President’s proposal to
allow workers to use a portion of the Social Security payroll tax to
fund voluntary personal retirement accounts.
These accounts would give Americans an opportunity
to build a nest egg and pursue a higher return on their payroll taxes
than is possible in the current system, thereby giving them greater
control over their retirement finances.
Under the President’s proposal, beginning in 2013
workers will be allowed to use up to four percent of their Social
Security taxable earnings, up to a $1,400 annual limit, to fund their
personal retirement accounts. The $1,400 cap will be increased by $100,
adjusted for wage growth, each year beginning in 2014 and continuing
until 2018.
The President has also embraced the idea of
progressive indexing as part of a solution to restore Social Security to
sustainable solvency.
Over time, wages tend to rise faster than prices.
Currently, the first Social Security payment that a person receives is
based on a formula that indexes an individual’s earnings to the rate of
growth in wages.
Under progressive indexing, a lower wage earner
would continue to have his or her earnings indexed to wage growth, but a
higher wage earner would have his or her earnings indexed to inflation;
middle-income workers would receive benefits that are indexed in part to
wage growth and in part to inflation.
By providing a higher rate of indexing for lower
wage workers than for higher wage workers, progressive indexing protects
those who most rely on Social Security.
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