Social Security's "Sleeper Issue" Exposed By Kucinich

[Itsthetruth]

For Immediate Release
Thursday, February 10, 2005

Social Security’s “Sleeper Issue”:
Price Indexing Exposed By Kucinich

Congressman Dennis J. Kucinich (D-OH) today brought forth a new case against the Administration’s so-called Social Security reform plan by exposing the precipitous drop in future retiree benefits implicit in the Administration plan to switch from wage indexing to price indexing.

In a speech this morning on the House floor, Kucinich said:

“Social Security benefits have increased over the years because they long have been calculated to wage increases, which on the average go up 3.6% a year. So Social Security benefits increase with rising wages. The Administration wants to change all that. They want to index Social Security benefits based on a price index, not wages.

“As a result, millions of future retirees will see their future Social Security benefits reduced as much as 40%. Because prices do not increase as fast as wages.

“Let me give you an example. If you began working in 1959 and retired in 2003, at age 65, under wage indexing, your benefits rise with rising wages, you would get $1158 a month. Under price indexing, your benefits would be frozen, you would get only $701 a month. So it would be a 40% cut in benefits with price indexing, and a person would lose $100,000 in retirement benefits over a lifetime.

“Why the switch to price indexing? Because, the privatization of Social Security will create an additional budget shortfall. The Administration is going to have to borrow money to set up private accounts. The shortfall is going to be for 45 years, and the Administration is going to have to borrow $15 trillion dollars.

“They are going to get the money off the backs of America’s retirees. It is wrong, say no to privatization, no to price indexing.”

Kucinich added that while much attention has been focused on private accounts, price indexing, once understood by both the media and the American people generally, will create such an uproar that it will jeopardize not only the Administration’s plans, but could create great political risk for members supporting the plans.

[elehhhhna]

1. In this economy, priceindexing might work Better than wage indexing.

just sayin'. Seem prices are outstripping wage increases. THANKS GW!

[Itsthetruth]

2. Social Security Benefits Go Up With Price Increases Now

Under current law social security benefits are protected from inflation with yearly cost of living increases based on the consumer price index. So benefits are currently based upon your income and payments into the Social Security Trust Fund (wage indexing) and on top of that we have yearly cost of living (price indexing) increases in benefits.

Last February 10th I wrote:

"This Battle Is Just As Important.

And we ought to hold the politicians feet to the fire on this. If the "private accounts" scheme goes up in flames don't be fooled into thinking the battle to defend social security is over. Hardly. This could be Bush's backup plan "B".

It's interesting that few if any members of the Senate are commenting on this. Have you read any statements by any Senators exposing and opposing Plan "B"? Perhaps some think they can declare a "victory" if they defeat private accounts while preparing to surrender on this other grand scheme for massive benefit cuts."

It's clear according to a White House "fact sheet" circulated after Bush's news conference and statements from Republican leaders that Bush has in mind some form of price indexing combined with wage indexing depending on a person's income. This means benefit cuts for all but the lowest wage earners.

[TahitiNut]

6. Correct. The COLA is based on the CPI-W.

While a retiree's initial benefit is (generally) Wage-Indexed, the year-over-year COLA adjustment is (generally) Price-Indexed.

Here's a comparison of increases in the Wage Index to the COLA for recent years.

Year COLA AWI
1997 2.1% 5.8%
1998 1.3% 5.2%
1999 2.5% 5.6%
2000 3.5% 5.5%
2001 2.6% 2.4%
2002 1.4% 1.0%
2003 2.1% 2.4%

[hector459]

3. Sending out my e-mails today. Why hasn't any other Dem brought this

to the public's attention.

[w4rma]

4. They have. I've heard this issue before. (nt)

[TahitiNut]

5. Kucinich is on top of this issue. Good for him.

Average Wage Indexing (AWI) is an arcane but very important element of calculating Social Security benefits, and has been a critical element in computing (initial, base) benefit elements, the Primary Insurance Amount in particular, since the late 70's. Sadly, however, it's arithmetically contrived enough to cause over 98% of the public's eyes to glaze over with any attempt to describe how it's calculated and used.

One of the effects of exploding "CEO salaries" (the HUGE salaries paid to a very small number of people on corporate payrolls) is to increase the AWI for recent years to a greater degree than actual compensation of the "bottom 99%" of workers increased. Thus, the wretched excesses of the most highly-"compensated" "workers" (it's far greater than fair compensation and they're hardly workers) has had the impact of magnifying increases in Primary Insurance Amounts, particularly for people with mid-level and lower-level earnings histories.


Always remember the "myth of the average." When Bill Gates walks into a room of 100 people, the average net worth of the people in that room increases by more than $500 million. (Too bad they can't spend it.)

[LiberallyInclined]

7. it doesn't really matter much which formula they use-

any increases in benefits generally gets eaten up by increases in medicare costs, so it's pretty much a wash.

[Itsthetruth]

8. Of Course It Matters!

It does matter. If your social security benefits are cut under price indexing your medicare costs will remain the same which means you'll have less money "left over" for other living expenses after your medical costs are paid.

I can imagine Bush along with others making your argument in order to defend social security price indexing cuts! After all, "it doesn't matter and won't make any difference" if benefit cuts are made.

[Cuban_Liberal]

9. Several folks have pointed this out.

I'm glad Kucinich has joined them in speaking out about it.