Saturday, January 22, 2011

making social security more "progressive"

truthout | The insiders in Washington really, really want to cut Social Security and they are prepared to say or do anything to do it. Among the latest lines is that they want to make Social Security more "progressive." This sort of rhetoric appeared in a report from the "liberal" Center for American Progress (CAP) in a plan that proposes substantial cuts in benefits.

To understand what CAP and other proponents of increasing the progressivity of Social Security mean, consider the idea of raising marginal tax rates paid by many middle-income people from 25 percent to 35 percent. The current 25 percent bracket begins at an income of $34,500 for singles, and $69,000 for couples.

Raising this tax rate by 10 percentage points would be a substantial hit to tens of millions of families who are certainly middle class by anyone's definition. However, this tax increase would also be progressive. The bottom 60 percent of the income distribution would not be touched at all, and those just over the cutoffs would only see a small increase in their tax burden.

Nonetheless a couple earning $100,000 a year would see their taxes rise by $3,100, which is not a trivial matter for a middle class couple. This is the way in the CAP plan for cutting Social Security benefits is progressive. It would lead to substantial reductions in Social Security benefits for people who earned an average of $60,000 or $70,000 during their working lifetimes. While such people earned more than most workers, such salaries don't quite put them on a par with Bill Gates.

The reason why CAP wants to cut the benefits of factory workers and schoolteachers is because this is where you have to go if you want to have any substantial reductions in Social Security payments. Peter Peterson, the billionaire investment banker, is fond of telling audiences that he doesn't need his Social Security check.

However true this might be, Peterson's Social Security check, along with those received by all the other millionaires and billionaires in the country, really doesn't make any difference for the program's finances. There are not many rich people, and because Social Security is a progressive program, the billionaires' Social Security checks are not much bigger than the checks received by ordinary workers.

This means it doesn't matter for the program whether or not Peterson and his wealthy friends get their Social Security checks. When they talk about cutting benefits for "affluent retirees" or making the program more "progressive," they are talking about cutting benefits for schoolteachers, firefighters and other middle-income workers.