Reforming Social Security through Price and Progressive Price Indexing

Brief

Reforming Social Security through Price and Progressive Price Indexing

December 12, 2005

Abstract

Social Security's long-run financial imbalance is prompting some policymakers to consider changing the method of indexing retirement benefits. This brief examines two proposed alternatives: (1) indexing benefits by price growth instead of wage growth; (2) indexing benefits by price growth for high-income workers and wages for low-income workers (progressive price indexing). Since prices generally grow more slowly than wages, both proposals would reduce average benefits compared to current law, although progressive price indexing would hold harmless the lowest earners. Both reduce benefits further below current law every year and, if continued indefinitely, would significantly reduce Social Security's role in providing retirement security for middle-income workers.

Research Area: 

Cross-Center Initiative

Cross-Center Initiative: 
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