What Does Price Indexing Mean for Social Security Benefits?
A potential component of the administration’s Social Security proposal is to shift from “wage indexing” of benefits to “price indexing.” This change sounds modest, but, in fact, would change the nature of the Social Security program. Price indexing would preserve the purchasing power of Social Security benefits, but these benefits would represent an ever-declining percentage of earnings before retirement. This Just the Facts discusses the reasons for keeping benefits up-to-date with either prices or wages. Then it describes the mechanics of both wage and price indexing, and the impact of shifting from wages to prices. Finally, it explores the implications of price indexing in terms of possible long-run responses — periodic adjustments or increased reliance on welfare programs.
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