Vilsack on Social Security: Neither warm nor fuzzy.

Here is a look Tom Vilsack's comments at e Carson City Community Center for the first Democratic presidential forum ahead of the Nevada caucuses.

Former Iowa Governor Tom Vilsack takes the stage third, jokes about the fact that he's supposed to talk about AFSCME, Reid, etc. "but I won't". Instead leaves his opening to talk about Iraq, in relation to a recent conversation with a young boy in Seattle and his concerns about Iraq. Asks the crowd, "What have you done... to end the war in Iraq?" Stephanopoulos asks that exact question first. Vilsack lays out his plan to end the war now, additionally stating that he believes the troops should be moved to Afghanistan. The second question covers healthcare, specifically the John Edwards plan, to which Vilsack responds, "We absolutely do need universal coverage," though not necessarily by increasing taxes. But he also talks about dealing with wellness, pointing to curing polio, etc. Final question covers Social Security and Medicare. Vilsack talks about balancing the budget of these programs by reindexing the program to prices, not prices and wages. Closes his appearance talking about his own personal story.

Reindexing to prices?

Uh oh.


Atrios has a go at explaining the trouble with price indexing of Social Security.

Just because I'm having nostalgia for the days when it was all about Social Security, let met briefly explain what price indexing instead of wage indexing would do to the program.

First, only the initial level of benefits is indexed to wages (which rise faster than prices), after that annual COLA increases are linked to prices.

Second, while the formula for Social Security is complicated, benefit payouts are somewhat progressive, with poorer people getting a bit more relative to what they pay in, and higher income people getting a bit less, but there is a relationship between lifetime income and benefit levels. Higher income people get more.

Changing to price indexing would, over time, delink the relationship between income and benefits entirely. The formulas in place would lead to poorer people having their benefits rising in real terms (over and above inflation) slowly over time, but benefit levels for higher income people would essentially be frozen. In about 90 years or so every Social Security beneficiary would end up receiving essentially the same level of benefits, which for higher income people would be a tiny percentage of pre-retirement income.

While Social Security isn't meant to provide the complete retirement portfolio for everyone, it is meant to provide a reasonable chunk of pre-retirement income for poor and middle class people so that all people, including victims of either bad fortune (stock market crash, major health care bill, etc...) or good fortune (living longer than expected), can aspire to maintain their pre-retirement existence.

More from the Economic Policy Institute:

Much has been made of the recent Social Security proposal put forth by Robert Pozen, a member of Bush’s President’s Commission to Strengthen Social Security, and endorsed by President Bush. Pozen’s suggested changes to Social Security include blending the current wage indexing of benefits with price indexing, a shift that will reduce Social Security benefits for middle-income workers by 22% in 2055 and by 28% in 2085. Indeed, the Pozen proposal will lead to substantial and ever increasing benefit cuts for well over 70% of Social Security beneficiaries, including retirees, widows, and surviving children.

This doesn't inspire confidence in Vilsack at all.