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An Open Letter to Congress: Support "Progressive Indexing"

May 10, 2005

Dear Member of Congress:

On behalf of the 350,000 members of the National Taxpayers Union (NTU), I urge you to support President Bush's proposal for progressive indexing of future Social Security benefits.

Under the President's plan, workers with annual incomes of $25,000 or less would continue to have their initial retirement benefits based on the increase in average wages over their years in the workforce. High-income workers (those with annual incomes of $113,000 or higher), would instead have their initial benefits based on the increase in prices during their working years, which is actually a fairer way of making this calculation. For those in between, initial benefits would be based on a changing "blend" of wage and price increases. Rather than undermining the system as many have claimed, the President's proposal actually would return the system closer to the expected benefit levels in place prior to 1972.

NTU has long argued that re-thinking benefit levels for wealthy retirees is a logical part of any effort to erase Social Security's and Medicare's enormous unfunded liabilities. While NTU would support even greater trimming of benefit growth rates, progressive indexing is a positive step forward.

Progressive indexing is of course just a piece of the President's much larger Social Security plan which we believe to be very solid. The plan is centered on allowing younger Americans to put away a portion of their payroll taxes in accounts that they own and control. Because individual accounts that are invested in an index fund or some other responsible portfolio will achieve far greater returns than Social Security as currently structured, these accounts will indeed help to "solve" the system's fiscal imbalance problems. More importantly, private accounts enable Americans to achieve ownership of actual retirement assets - something that unfortunately has never been part of the Social Security system.

NTU has set several criteria for Social Security reform. Any reform plan should not raise taxes (either by raising the payroll tax rate or lifting the cap on earnings). Reform should also increase freedom, create ownership of retirement assets, and terminate long-term unfunded liabilities. We believe that the President's plans achieve these goals.

Large personal accounts should be part of Social Security reform. But they cannot be the only element of a reform plan. If - either through inaction or through banking on empty promises of future spending restraint - Congress fails to address Social Security's long-term unfunded liabilities now, we will be guaranteeing the enactment of future tax increases. Thus, we commend the President for adding progressive indexing to his plan.

Any votes Congress takes on Social Security reform plans that enact the President's blueprint are certain to be among the most heavily-weighted votes for NTU's annual Rating of Congress.


John Berthoud