At his press conference last Thursday, President Bush added a new 'progressive indexing' proposal to his Social Security reform plan that not only largely resolves the program's imminent insolvency without raising payroll taxes, but also exposes an almost unconscionable hypocrisy in the Democrats' position on this issue.

At odds for months in this debate has been how future payments to recipients are calculated.  Currently, increases are tied to annual wage gains of the workforce.  However, it has been argued that if they were indexed to the growth of inflation, or 'prices' —— which have typically been much lower than changes in wages —— insolvency would be largely averted.

Unfortunately as this debate has ensued, the Democrats have depicted such a change as being a cut to the benefits of future retirees.  As a result, this one issue has become its own 'third—rail' as the left has been successful in casting it as thoroughly verboten.

Enter President Bush last Thursday, who in a stroke of sheer genius proposed preserving this form of wage—indexing for only the poorest of Americans, while allowing for a less generous calculation for the more financially successful members of the population.

The brilliance of this strategy is multifold.  First, by retaining the more favorable wage—indexing for the poorest 30% of Americans, Mr. Bush has masterfully appealed to the heart of the Democratic Party.  In the most recent election, this was by far the largest voting bloc for Senator Kerry who won this demographic by a margin of 63% to Mr. Bush's 36%. 

Consequently, the most left—leaning segment of future retirees should —— assuming the press accurately depicts this proposal —— be less opposed to Social Security reform, for it no longer has any conceivable negative impact on them.

However, potentially more important, this plan would significantly reduce the value of Social Security to the 70% of Americans who are going to see their guaranteed benefits reduced, and would likely make them more interested in the creation of private accounts to make up this shortfall.

Obviously, this is what has Democrats shaking in their boots concerning this new proposal, with prominent left—wing figures making statements so absurd that anyone within earshot must look as aghast as the Aflac duck after Yogi Berra says, 'And they give you cash...which is just as good as money!'

Why?  Because the Democrats in their desire to preserve the status quo have now been forced to defend the financial rights of the wealthiest Americans as being equally important as those of the poor. 

Let's understand that full price—indexing —— the least generous of the future benefit calculations —— will only apply to citizens making in excess of $113,000 per year.  This represents the top seven percent of wage earners.   

Therefore, to counter this new proposal, the Democrats have to portray the preservation of wage—indexed Social Security benefits for the wealthiest Americans —— people they regularly depict as being rich enough to absorb a greater tax burden than they currently are —— as being just as important as maintaining such benefits for the poor. 

In effect, it's okay to take money out of this group's pockets in the form of taxes so that the poor can pay less, but it would somehow be inappropriate to reduce their Social Security benefits so that the poor can continue to receive what has been promised to them. 

(Re—enter confused looking Aflac duck!)

What makes this even more ludicrous is that this upper echelon of wage earners has the greatest access to other retirement vehicles such as IRAs, 401(k)s, 403(b)s, SEPs, Keoghs, etc.  As a result, this is the group that can most afford future benefit cuts, and to suggest otherwise thoroughly undermines the Democratic Party's long—standing position that the rich have the financial wherewithal to shoulder the highest tax burden in our land.

Which leaves the Democratic Party with only one tenable position to solve the looming Social Security insolvency problem —— raise payroll taxes.  Period.  They can't support anything else, for every other option reduces the socialist element of the program.

Whether it's changing indexing, or raising the age at which one can begin receiving distributions, future benefits are cut forcing retirement planners to utilize other investment options that inherently reduce their reliance on this government program.  And, obviously, so would the implementation of private accounts. 

As a result, the president with this move has backed the Democrats into an extremely uncomfortable corner that is going to be very difficult for them to navigate out of, for now 70% of the country is going to be given a very distinct choice as to which horse he/she wants to back in this race:  Do you want to keep your current wage—indexed benefits and pay more in payroll taxes today and until you retire, or do you want to receive less in guaranteed distributions years from now, but not have your taxes increased immediately?

Which option will the majority of Americans support?  Well, Walter Mondale found out twenty years ago that campaigning on a platform to raise taxes is not typically a winning strategy. 

Noel Sheppard is an economist and writer residing in Northern California.  He welcomes your comments at slep@danvillebusinesscenter.com.