The Washington Post is reporting that President Bush's Social Security privatization proposal will include a cut in benefits. The alteration in the benefits formula would be to move away from a wage-based index and to an inflationary index. Since wage growth typically rises faster than inflation, the current system is set up to increase retirees standard of living. Switching to an inflation-based index would ensure that the total amount of dollars given to retirees now and in the future remains constant, thus keeping the standard of living level fixed.

Such a move is sure to trigger an impassioned debate on both sides of the aisle when the measure is unveiled in February or March. Administration allies are trying to emphasize the long term fiscal problems of social security, while opponents are pointing to the large near term transition costs and increased risks of implementing any privatization system.