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November 06, 2007

Good Ideas That Aren't Worth Doing

With the candidates lining up to support raising the payroll cap on Social Security -- a deeply progressive tax hike that warms my heart -- Paul Starr asks if this is something they've really thought through:

Let's think carefully about this. Do Social Security's problems need to be addressed now by a tax increase? How many tax increases can the next president expect to get through Congress? And what would be the impact of taxing all earnings on the long-term political viability of Social Security?[...]

Given the political resistance to any proposals for increasing taxes, a new president will have to consider carefully whether the first priority for new revenue in 2009 ought to be solving the speculative budgetary problems of the 2040s. A new administration might want, for example, to do something about the 47 million Americans who now don't have any health insurance. Or it might want to make productive investments in education, research, and infrastructure that could help keep the economy growing at more than 1.8 percent a year.

And consider this: Eliminating the cap on taxable earnings in Social Security will change the relationship to the program of people in the income brackets over $97,500, most of whom are not to be confused with plutocrats. Social Security remains a good deal for most of them because it provides income in old age that, unlike private pensions, is indexed for inflation. Even for affluent seniors, this is a form of inflation-risk protection that serves a valuable role in a portfolio of retirement income.

But take off the cap on taxable earnings, and many upper-middle-income people will decide the program is no longer in their interest. If you want to revive the movement toward privatization, eliminating the cap on taxable earnings would be just about the best thing you could do.

That may be true. Or raising the cap could do just about nothing to political support for the program. I'm really not sure. But Paul's certainly right that it requires a pretty bizarre prioritization scheme to make a basically solvent pension program the first of your fights. Indeed, we've seen how starting an administration with fiscally responsible, tough medicine policies, goes. Bill Clinton came in and fought to pass NAFTA and the Deficit Reduction Act, both of which required painful compromises, spending cuts, economic losers. By the time he turned his attention to health care -- which he thought of as the policy of the three which would give back to some of the perceived losers from the first two -- there was no congressional energy for yet another hard sell.

November 6, 2007 | Permalink

Comments

Why not do what Dean Baker suggests and push for truly free trade, where professionals are subject to the same competition as the working classes? That way, more income will be under the cap, but prices will also be lower.

Posted by: Brian | Nov 6, 2007 8:45:12 AM

Bill Clinton came in and fought to pass NAFTA and the Deficit Reduction Act, both of which required painful compromises, spending cuts, economic losers. By the time he turned his attention to health care -- which he thought of as the policy of the three which would give back to some of the perceived losers from the first two -- there was no congressional energy for yet another hard sell.

Excellent point.

Relating it to the discussion yesterday on your opinion of HRC being the "best" of the big three on health care-- do we know anything about where health care reform sits within HRC's prioritization scheme? Obama's? Edward's? Is health care going to be the main issue besides Iraq?

I've read all the quotes/statement, but it's not clear to me.

Posted by: wisewon | Nov 6, 2007 9:09:49 AM

Wow. Paul Starr is even more hacktackular than usual in his dishonest Clinton apologia here.

Neither Edwards nor Obama said they were going to lift the cap, let alone that it was going to be their top priority.

Senator Clinton didn't even take the Starr position - like Edwards and Obama she didn't reject Russert's premise. The only difference was that Edwards and Obama said their first response to a SS shortfall would be to make the tax code more progressive, while Clinton said she'd be willing to sell out lower income workers and retirees.

I'm sure Paul Starr and Hillary Clinton are fine with a country where Warren Buffet pays a lower tax rate than his secretary. The question is whether or not the Democratic primary electorate is fine with that.

-----

And you ought to quit the Prospect, Ezra. You work for a rag that shills for everything the diseased parts of the Democratic Party. Write a book.

Posted by: Petey | Nov 6, 2007 9:10:28 AM

"Given the political resistance to any proposals for increasing taxes, a new president will have to consider carefully whether the first priority for new revenue in 2009 ought to be solving the speculative budgetary problems of the 2040s."
Right. This is a topic for the second part of the presidency starting 2006. And only to get social security solvent until 2080, so republicans won't be able to make this an urgent issue before, say, 2050.

Posted by: Gray | Nov 6, 2007 9:12:21 AM

This suggests that in addition to the policies set forth, its important to consider which policies a prospective newly elected President would put forth first. If its Health Insurance and Climate Protection / Energy Independence, then raising the cap or a SS levy on incomes over $200,000 (the two proposals that seem to be out there), that's better than the other way around (whichever other way around that is).

Posted by: BruceMcF | Nov 6, 2007 9:12:24 AM

oops, second session of the presidency starting 2013, of course...

Posted by: Gray | Nov 6, 2007 9:13:44 AM

"Neither Edwards nor Obama said they were going to lift the cap, let alone that it was going to be their top priority."
Obama made a horrible ad making social security s topic again (the damn idiot). And it was reproted he is for lifting the cap.

Posted by: Gray | Nov 6, 2007 9:15:58 AM

Raising the payroll cap just gives the repubs a bigger surplus that they can steal.

Repeat after me: there is no Social Security crisis. The program is working just as forecast by the 1983 reforms. Keep your hands off Social Security.

Posted by: Bloix | Nov 6, 2007 9:16:27 AM

there was no congressional energy for yet another hard sell.

As Brad DeLong just recently and very convincingly reported, it was the strategical stupidity of Clinton's aide in charge of the program who unnecessarily made the heathcare bill such a hard sell. And afaik the healthcare bill couldn't move on earlier because Clinton first had to bargain for the GOP votes by making compromises on the other two bills mentioned...

Posted by: Gray | Nov 6, 2007 9:21:11 AM

"Raising the payroll cap just gives the repubs a bigger surplus that they can steal."

Hey, they won't have much time left for stealing. And if the tresury bonds are sold to panically investors fearing the impact of the mortgage bubble, or to social security, doesn't make that much of a difference. One way or the other, the US has to stand to its obligations.

Posted by: Gray | Nov 6, 2007 9:24:26 AM

Bloix, I know that Josh Marshall just recently made the point you raised here,but even he can be wrong sometimes. That's not the right reason why Dems should stay away from SS reforms now. It's just that there are much more urgent priorities.

Posted by: Gray | Nov 6, 2007 9:27:01 AM

"And it was reproted he is for lifting the cap."

Whatever was reproted, I watched and listened to what the candidates actually said at the debate. You and Paul Starr seem not to have.

Posted by: Petey | Nov 6, 2007 9:30:04 AM

Just as Clinton invited trouble on day one by giving priority to the 'gays in the military' rule (not that there was anything wrong with addressing this issues later in the term), I expect the next Democratic president to do something stupid like that.

Posted by: gregor | Nov 6, 2007 9:32:22 AM

"I watched and listened to what the candidates actually said at the debate. You and Paul Starr seem not to have."

Dunno about Paul, but I didn't. Would have been a bit difficult for me here in Germany anyhow. However, since you say the debate, you're suddenly the new Obama expert and you are positive he never held a position that he didn't mention in thaqt discussipon? Come on, that's ridiculpous, right? Especially when viewed in perspective with these statements Obama made in an ABC´interview:
When Obama appeared on ABC's "This Week" last May, he told ABC's George Stephanopoulos, "Everything should be on the table" as options for assuring the program's long-term solvency.

"Raising the retirement age?" Stephanopoulos asked.

"Everything should be on the table," Obama replied.

"Raising payroll taxes?" Stephanopoulos asked.

"Everything should be on the table," Obama said. "I think we should approach it the same way Tip O'Neill and Ronald Reagan did back in 1983. They came together. I don't want to lay out my preferences beforehand, but what I know is that Social Security is solvable. It is not as difficult a problem as we're going to have with Medicaid or Medicare."
http://blog.washingtonpost.com/the-trail/2007/10/30/whats_on_the_table_for_obama_a.html

Posted by: Gray | Nov 6, 2007 9:49:14 AM

Petey take it up with the Des Moines Register.
Clinton sidesteps Social Security issue, Obama says in D.M.
Lede

Barack Obama in Des Moines on Saturday accused Hillary Clinton of blatantly avoiding the nation's looming Social Security crisis, telling a crowd that the answer is increasing taxes on the nation's wealthiest.

Conclusion
Projections provided by Obama's campaign staff say that uncapping the payroll tax would solve projected shortfalls for at least 75 years.
Unless the reporter is hallucinating perhaps you need to watch and listen a little more widely.

Posted by: Bruce Webb | Nov 6, 2007 9:51:16 AM

a new president will have to consider carefully whether the first priority for new revenue in 2009 ought to be solving the speculative budgetary problems of the 2040s."

How else do you kill a zombie meme?

I know there's no SS 'crisis', and you know there's no SS crisis, but what about the other 300 million people out there?

Until that meme is killed, SS 'reform' (in truth the Financial Services Industry Full Employment And Guaranteed Profitability Act of Fill In The Year) will get its annual airing -- and in a fit of absent-mindedness, might actually pass.

The GOP hasn't been the party of fiscal probity since when, Nixon I? And there was an actual budget surplus under Clinton. Yet all I hear is 'tax and spend Democrats'.

Posted by: Davis X. Machina | Nov 6, 2007 9:52:17 AM

"The program is working just as forecast by the 1983 reforms."

I have to admit, that's a good point, but it should be made much stronger to make the republicans shut tf up:
'The program is working just as Ronald Reagan envisioned it to do with his 1983 reforms.'
Before the right wingers make their points about privatisation, they should firstly explain to the public why they want to turn inside out a still very solvent program that Ronald Reagan successfully reformed about 25 years ago. Was Reagan totally wrong???

Posted by: Gray | Nov 6, 2007 9:59:52 AM

"Barack Obama in Des Moines on Saturday accused Hillary Clinton of blatantly avoiding the nation's looming Social Security crisis, telling a crowd that the answer is increasing taxes on the nation's wealthiest."

WHAT SOCIAL SECURITY CRISIS???
Is the f*cking idiot secretly working for the republicans? What a moron!
|-(

Posted by: Gray | Nov 6, 2007 10:01:21 AM

"Until that meme is killed, SS 'reform'[...] will get its annual airing -- and in a fit of absent-mindedness, might actually pass."

Good point, Davis, but that a Dem candidate actually does the fear mongering for the GOP instead of debunking the myths is really mind boggling!!!

Posted by: Gray | Nov 6, 2007 10:04:43 AM

The Social Security payroll tax is not regressive and only by jerking the program out of context, and by the way playing into the hands of privatizers, can you say it is.

It can't be said enough. Social Security is not Welfare. It is not some sort of largess from the wealthy to improvident workers, it is worker funded insurance for the sole benefit of workers. Starr is right on the button here. An honest examination of the economic projections show that Social Security is likely funded for decades after the currently accepted 2041 figure, and trend growth funds it forever.

Low Cost is out there. We know exactly what it would take to fully fund Social Security under Intermediate Cost projections: 1.95% of payroll. Do the math, that isn't lot of money. We also know that any amount of longterm productivity growth above 1.7% or Real GDP above 2.0% reduces that payroll gap leading to a continuation of the trend seen in this table EPI: Changes in Trustees Projections over Time The numbers show that left untouched Social Security is slowly closing the theoretical gap, a gap that itself has only been sustained by some systematic lowballing of growth not only in the outyears but near term. The standard Intermediate Cost projection, from which all commentary and dates are drawn relies on the economy slowing down sharply over the next five years (to 66% of 2006 rates) and going down from there.

On the other hand longterm Real GDP growth at 2.8%, itself well below 2006 results fully funds Social Security with no changes in benefits, retirement age, tax rate or cap adjustment. You don't have to believe me, Dean Baker was on to this con game all the way back in the 1990's, and Sawicky insists he was on to it earlier, and Krugman by now thoroughly on board. Social Security is not broke, at all. The situation is actually much improved since Dean (with Mark Weisbrot) put it like this in 1999' Social Security: the Phony Crisis

We have a chance, said President Clinton, to “fix the roof while the sun is still shining.” He was talking about dealing with Social Security immediately, while the economy is growing and the federal budget is balanced. The audience was a regional conference on Social Security, in Kansas City, Missouri, that the White House had helped bring together.

The roof analogy is illuminating, but we can make it more accurate. Imagine that it’s not going to rain for more than 30 years. And the rain, when it does arrive (and it might not), will be pretty light. And imagine that the average household will have a lot more income for roof repair by the time the rain approaches.

Now add this: most of the people who say they want to fix the roof actually want to knock holes in it.

This is the situation facing Social Security, and it is well known to those who have looked at the numbers. The program will take in enough revenue to keep all of its promises for over 30 years, without any changes at all. Thirty years is a long time—it’s hard to think of any other program that can claim to be secure for that long. Furthermore, the forecast of a shortfall in 2034 is based on the economy limping along at less than a 1.7 percent annual rate of growth—about half the rate of the previous three decades. If the economy were to grow at 1998’s rate, for example, the system would never run short of money.


Well guess what? The economy grew enough between 1998 and 2004 that even with sub-par growth going forward the system is not in any trouble at all.

With Ezra I am all for getting some progressivity back. Address it by taxing capital gains as regular income, go after top rates, whatever. Just leave the cap alone. Workers don't need an infusion of income from capital on this one, we certainly don't need the political interference that would come with a cap increase. Social Security Insurance is fine, if you want to advance the progressive agenda get some health insurance for our kids for God's sake.

Raising the Cap is a Bad Idea that is not Worth Doing.

Posted by: Bruce Webb | Nov 6, 2007 10:13:50 AM

It can be done in a way that will produce a tax rate cut. Extend the SS Tax to all income. Raise the age and index to life expectancy. Over time move toward a point where everyone on SS gets the same amount of money. This changes will allow you to cut the tax significantly.

Posted by: Floccina | Nov 6, 2007 10:17:27 AM

Gray, the 1983 reform has gone straight down the memory hole.

Every problem now raised as a reason to gut social security was foreseen by the actuaries and factored into the new withholding structure - 2 retirees for one worker, longer life expectancies, early retirements, and most importantly the retirements of the baby boomers. And the solution to the problem - accumulation of a surplus during the years of high baby boomer employment in order to have enough to pay out during the years of high baby boomer retirement - is now being presented as a catastrophe - "in 2017 Social Security" will start paying out more than it's taking in!"

Every Dem should always start out every conversation about social security with the words "the bipartisan reform of 1983, signed by Ronald Reagan, fixed that problem."

And if a Dem wants to explain how the system works, s/he should use the biblical example of Joseph's dream of the famine in Egypt. Joseph foresaw a famine seven years in the future, and so Pharoah built storehouses of grain to provide for the lean years. That is just what Social Security has done.

Posted by: Bloix | Nov 6, 2007 10:24:50 AM

How about eliminating the cap and then reduce the rate. Reducing the payroll tax on low income workers would have positive effect on the economy and make it less regressive.

Posted by: phastphil | Nov 6, 2007 10:37:21 AM

There is, on the other hand, a new problem ... due to growing income inequality, the social security tax no longer covers the proportion of wage and salary income that was presumed in 1983.

A progressive social security tax reform could place a payroll levy on payroll incomes over $200,000, set at the FICA rate, and then if the system is overfunded, rebate the social security contribution to suit.

Posted by: BruceMcF | Nov 6, 2007 10:42:17 AM

Wow is it shocking to see some many people deny the obvious. At what point would SS be in crisis?

http://www.socialsecurity.gov/OACT/solvency/index.html

Trustees Reports issued over the last several years have indicated that Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds would become insolvent sometime in the next 30 to 40 years under the intermediate set of economic and demographic assumptions provided in each report. Various proposals have addressed this long-range solvency problem. These proposals are generally intended to restore, or largely restore, solvency for the long-range period (the next 75 years).

Things could change, a plague wiping out a few million old people or a world war could bring the numbers back in line but absent that in 40 years it is insolvant. How long do you propose waiting to fix the math so it is a viable trust? This is exactly why we can't let you get your hands on healthcare.

Posted by: Nate O | Nov 6, 2007 10:44:17 AM

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