Boo, Grandma!

From the very start, all through the Presidential campaign, up to today, President Bush has made it crystal-clear that he would not touch Social Security benefits for current recipients or those near retirement. Today the Washington Post is reporting: “Social Security Formula Weighed – Bush plan likely to cut initial benefits.” Quicker than you can say “Chappaquiddick” the Democrats were screaming that the GOP is waiting on the back stoop waiting to shuffle Grandma off to the bread line.

However, the restructuring of benefits from “wage indexing” to “price indexing” is long overdue and any change would be transitioned over decades. This reform was endorsed by the 2001 Commission to Strengthen Social Security and the rationale for the change was made clear by N. Gregory Mankiw, the chair of the Council of Economic Advisers:

"A person with average wages retiring at age 65 this year gets an annual benefit of about $14,000, but a similar person retiring in 2050 is scheduled to get over $20,000 in today's dollars," Mankiw said in a speech at the American Enterprise Institute. "In other words, even after adjusting for inflation, a typical person's benefits are scheduled to rise by over 40 percent."

Since I plan to retire somewhere around 2030, this sounds like a sweet deal for me. But without dramatically increasing payroll taxes, this Ponzi scheme cannot continue while wages outpace the inflation rate.