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What is Progressive Price Indexing?

April 18, 2005
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Introduction

As just reiterated in the 2005 Trustees Report, Social Security faces a 75-year deficit equal to roughly 2 percent of taxable payrolls. Closing this gap requires either a cut in benefits or an increase in taxes. One approach to cutting benefits under consideration by the administration is to change how benefits are indexed. An earlier Just the Facts explored the implications for benefits of moving from “wage indexing” of benefits to “price indexing.” This Just the Facts describes a proposal for “progressive price indexing.” The notion is that benefits for low-wage earners would continue to rise in line with wages, while those for maximum earners would rise in line with prices; everyone in between would see some combination of the two. The implication is that replacement rates — benefits as a percent of pre-retirement earnings — for low earners would remain constant over time, but replacement rates for high earners would decline sharply. The higher the earnings, the sharper would be the decline.

Senior man working at laptop at home
Senior man working at laptop at home
Author(s)
Headshot of Alicia H. Munnell
Alicia H. Munnell
Headshot of Mauricio Soto
Mauricio Soto
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Citation

Munnell, Alicia H. and Mauricio Soto. 2005. "What is Progressive Price Indexing?" Issue in Brief 17. Chestnut Hill, MA: Center for Retirement Research at Boston College.

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Topics
Social Security
Publication
Issue Brief
Publication Number
JTF#17
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