Heritage Foundation Leadership for America

In a news conference last night, the President discussed benefits growth in Social Security, saying that in any reform plan Congress must address the "promises it cannot keep for a younger generation." At the same time, he said, it should change the growth in benefits to ensure that all seniors receive benefits at or above today's level, while benefits for lower-income seniors should grow more quickly than those for higher-income seniors.

Many commentators note that the President's words broadly sketch the benefit-indexing plan put forward by Robert Pozen. Pozen's 'progressive' indexing would slow the growth of benefits for high-income seniors while allowing faster benefit growth for low-income seniors. This change alone could eliminate a substantial portion of Social Security's unfunded liabilities--the White House says 70 percent--bringing the system much closer to solvency.

As Heritage's David John has written, sensible reform should "reduce the unfunded burden that today?s Social Security system will impose on future generations." The way to do this is to slow the growth of benefits for younger workers "to more reasonable levels while also giving them the time and tools necessary to make up the difference through investment earnings. Continuing to promise those who are a long way from retirement more than Social Security can realistically deliver only makes the system unstable by pushing the burden of pay­ing for it onto future generations." Pozen-style indexing is a politically-attractive way to accomplish this end.

The Heritage Foundation has a good deal of experience with progressive indexing. Our Bush Plan Calculator assumes that benefits are reformed by what several of our economists call 'Pozen on steroids.' The indexing used in the Calculator slows the growth of benefits for upper-income individuals, while allowing lower-income workers to maintain a faster pace of benefit growth. Our Calculator is the only publicly-accessible model of the President's plan that is consistent with the details that the President described last night.

We will have more in the coming days on these new details of the President's proposal. But if you want a quick look at what it would mean for tomorrow's retirees, be sure to visit our Calculator.