Bush's new direction.

Byline: The Register-Guard

In public policy debates like the one over the future of Social Security, reflex takes over after a while. Anything President Bush says on the subject will be automatically denounced by some and embraced by others. But in his latest proposal - to cut the rate of growth in future benefits for relatively well-off retirees - the president has moved into new territory that should lead critics and supporters alike to freshen their thinking.

Bush made his latest proposal as he neared the end of a 60-day tour intended to rally Americans to the cause of private Social Security accounts. The idea is not catching on, and for good reasons. Private accounts would do nothing to ensure the solvency of the Social Security system, which in 2041 is projected to have exhausted its reserves, leaving enough income to pay only 72 percent of promised benefits. A transition to private accounts would also cost up to $2 trillion, adding to the nation's already daunting borrowing needs.

The president's new proposal marks an abrupt change in two respects. First, he's now talking about a way to improve Social Security's solvency, moving from the private-accounts sideshow to the main problem. Second, he has accepted the principle of progressivity - that is, the notion that those Americans least able to afford cuts in benefits should be asked to sacrifice the least. Both of these departures are significant, and constructive.

Bush's plan is lacking in many details, but at its heart is the concept of "progressive indexing." Social Security benefits currently increase each year to keep pace with rising wages. If benefits were instead indexed to prices, which rise more slowly than wages, part of the system's projected shortfall would disappear. Bush proposes to stick with wage indexing for low-income workers, and shift to price indexing for people higher on the income scale.

Progressive indexing was immediately condemned as a cut in benefits. In fact, it's a reduction in the rate of increase - not quite the same thing as a cut. Benefits would be unaffected for those who are most likely to depend fully on Social Security benefits for retirement income. By some estimates, progressive indexing as proposed by Bush would close 70 percent of the Social Security system's projected funding gap.

Those who reject any sort of reduction - whether it's called a cut or a slowdown in the growth of benefits - leave themselves only two choices: increase Social Security taxes, or do nothing. It may be possible, even necessary, to address part of the shortfall with tax increases, such as making incomes above $90,000 a year subject to the Social Security payroll tax. To do nothing is to gamble that the projections are wrong, and that Social Security's financial problems won't materialize as predicted. Losing this gamble would mean that more drastic cuts or tax increases would be required later.

A politically acceptable and financially sound plan for ensuring Social Security's solvency will probably include all three elements - the growth in some benefits will be slowed, some taxes will be increased, and part of the problem will be left unaddressed. Some variant of progressive indexing would be a promising approach for the first element of such a plan.

Critics of Bush's proposal say that it's aimed squarely at the middle class - lower-income people would be unaffected, while the rich don't rely on Social Security for retirement income. This flaw could be addressed by raising the threshold at which the shift to price indexing begins, making the plan more progressive.

A deeper criticism is that progressive indexing would transform Social Security into a program that provides disproportionate benefits to the poor, exposing the system to political attack. This argument implies that the growth in benefits can never be slowed - or if it is, that the most vulnerable people can't be spared the effects of the changes. Yet Social Security benefits are already progressive in some respects, without undercutting middle-class support for the system. And making benefit calculations still more progressive would help compensate for the fact that the Social Security payroll tax is highly regressive.

Bush's proposal needs a lot of work, particularly to soften its effect on middle-income workers. Yet unlike the president's plan for private accounts, progressive indexing is not a costly distraction from the real problems of Social Security. The concept, properly applied and in combination with other steps to ensure the system's solvency, could be an important part of the solution.