At a press conference on Wednesday, President Bush acknowledged that his idea to privatize Social Security was a tough sell but added that there were other, related ideas out there that merited consideration.
One such idea that Bush pointed towards was that of Robert Pozen, chairman of one of the nation's oldest mutual fund companies,
Pozen, 58, a Democrat lawyer, has gained prominence in the media in the last few days for his ideas on how to overhaul Social Security.
The Busch camp proposes using a price-indexation method to assist in improving Social Security. As of now, Social Security benefits are tied to a wage index. Bush's supporters say that benefits should be linked to prices, which rise slower than wages over time. Economists have argued that such an approach is likely to cut benefits sharply for retirees.
That's where Pozen comes in. He suggests a more nuanced approach, which he calls "progressive indexation." Under this method, the benefits of low-wage workers, or those with average career earnings of less than $25,000, would be tied to a wage index. The benefits of those with incomes above $113,000 would be tied to a price index. And, workers in the middle, which, Pozen estimates, equal roughly 30% of America's wage earners, would receive benefits which are a mix of the two.
Pozen says his plan serves the middle-income earners well, as they are the ones who rely on Social Security for a large part of their retirement income and have restricted access to private plans such as 401(k)s. "You say to the middle and high-income earners: 'You are going to get less in benefits, so we will give you something you want in return,'" Pozen told the Boston Globe.
He also suggests diverting only 2% of Social Security payroll taxes to private accounts, rather than the 4% suggested by Bush, because creating smaller accounts would translate to less government borrowing.
It is argued that the Pozen plan would cut in half the Social Security's estimated $3.7 trillion in deficit over the next 75 years.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.
