As Social Security begins to move to the front burner in Washington, it will be important to keep a clear head when reading about possible revisions. No politician wants to be responsible for either cutting benefits or raising taxes, so we are starting to hear about “alternative” solutions, such as raising the full retirement age or revising the benefit formula through “progressive price indexing.” These are presented as a “third way” that cause little or no pain for anyone.
In her latest piece for Marketwatch, Alicia Munnell reminds us that there are only two ways to fix Social Security: cut benefits or raise revenues. The raising of the full retirement age amounts to a benefit cut for future retirees. Progressive price indexing would change the benefit formula for high earners so that future indexing factors and bend points would depend on the rise in prices instead of wages, as it’s done now. This, too, amounts to a benefit cut.
Munnell calls this a “dirty fight” because it’s not honest. She is hoping for a clean fight in Washington that clearly spells out what the proposals actually are. She also believes cutting benefits would be disastrous for our country. That leaves the only other option: raising revenues.
Read her Marketwatch article here.