A $60,000 question

Don Luskin

A remarkable collection of lies in Paul Krugman's New York Times column today. Trying to assail President Bush's adoption of Democrat Robert Pozen's idea of "progressive price indexing" of Social Security benefits, Krugman writes that its so-called "benefit cuts" will "have their biggest percentage impact on the retirement income of people making about $60,000 a year." Of course the whole point of progressive indexing is to lodge the largest impact on those at the very top of the scale of earnings subject to Social Security benefits -- not those in the middle, earning $60,000. As the New York Times itself proved in a graphic accompanying a story on May 1 based on Social Security Administration actuarial estimates (see below), maximum earners at $90,000 do see a larger percentage impact.

Krugman then goes on to extend his lies about the impact of Bush's proposals on those who earn $60,000 per year, writing:

Suppose you're earning $60,000 a year. On average, Mr. Bush cut taxes for workers like you by about $1,000 per year. But by 2045 the Bush Social Security plan would cut benefits for workers like you by about $6,500 per year. Not a very good deal.

First, here Krugman is not talking about "the Bush Social Security plan" but rather the Democrats' Social Security Plan -- because the Bush plan includes personal accounts, which the Democrats have sworn to oppose at all costs. According the Social Security Administration actuaries, earnings from personal accounts of the type Bush has proposed would replace about $3,900 of the $6,500 lost to progressive indexing -- leaving only a $2,600 effective deceleration in benefits.

Second, consider what someone earning $60,000 a year can do with an extra $1,000 -- thanks to Bush's tax taxes. Let's say he invests that $1,000 in an IRA, in a conservative mix of stocks and bonds earning 4.9% per year after inflation and fees (the same return assumption used by the Social Security Administration actuaries). In 2045, that account would be worth more than $131,000. That would be more than enough of an endowment to generate tax-free income of $2,600 per year -- to make up for the residual deceleration in benefits -- forever.
Posted by Don Luskin on May 9, 2005 2:03 AM to Social Security Choice