Progressive Indexing Better Than Tax Hikes, Taxpayer Group Says

By Susan Jones | July 7, 2008 | 8:22 PM EDT

( - In an open letter to Congress, a taxpayer watchdog group urges lawmakers to support the progressive indexing of Social Security benefits. It's better than a tax increase, the National Taxpayers Union said.

Under the plan proposed by President Bush, workers with annual incomes of $25,000 or less would get higher retirement benefits than the current system allows, but higher earners (those with annual incomes of at least $113,000) would get lower retirement benefits.

The National Taxpayers Union told lawmakers that re-thinking benefit levels for wealthy retirees is a logical part of any effort to erase Social Security's and Medicare's enormous unfunded liabilities.

"While NTU would support even greater trimming of benefit growth rates, progressive indexing is a positive step forward," said John Berthoud, NTU president.

The NTU noted that progressive indexing is just one part of President Bush's "solid" plan for reforming Social Security. The NTU also supports the idea of letting younger workers voluntarily divert some of their payroll taxes in accounts they would own and control.

"Because individual accounts that are invested in an index fund or some other responsible portfolio will achieve far greater returns than Social Security as currently structured, these accounts will indeed help to 'solve' the system's fiscal imbalance problems," Berthoud said in his letter to lawmakers.

"More importantly, private accounts enable Americans to achieve ownership of actual retirement assets -- something that unfortunately has never been part of the Social Security system."

NTU insists that Social Security reform must include a hike in payroll taxes or an increase in the current $90,000 cap on earnings.

"Reform should also increase freedom, create ownership of retirement assets, and terminate long-term unfunded liabilities. We believe that the President's plans achieve these goals," Berthoud said.

But if Congress fails to address Social Security's long-term unfunded liabilities now, that will guarantee the enactment of future tax increases, NTU warned.

Democrats strongly oppose the creation of voluntary, personal accounts for younger workers, and they are refusing to discuss any reform plan that includes such accounts.

House Democratic Leader Nancy Pelosi also opposes progressive indexing, even though it means more money for the poor at the expense of the better-off.

"This is the single largest Social Security benefit cut for the middle class in history," Pelosi said on her website. "Anyone making more than $20,000 will see their guaranteed benefits cut."

Republicans accuse Democrats of politicizing the issue rather than trying to help solve it.

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