Two days ago, the New York Sun editorialized that the Heritage Foundation was plotting to raise taxes as part of Social Security reform. The truth is that its resident expert on the program, David John, thinks that it would be a mistake to apply payroll taxes further up the wage scale. For one thing, it wouldn’t go very far toward making the program solvent. But John says that this idea might be acceptable as part of a package of reforms that includes other, better elements.
The question I come back to is: What counts as a tax increase? Consider this admittedly unrealistic hypothetical: We get a deal that cuts the Social Security tax by 3 points and raises the cap to apply to an additional four people. For those four people, the plan would constitute a tax increase: Both their average tax rates and their marginal tax rates would increase. But would the plan constitute a tax increase overall? It seems to me to be a mistake to be too categorical in ruling out any plan that raises the payroll-tax cap.
A curious thing is happening in the intra-Republican politics of Social Security. People who insist that reform should consist only of creating personal accounts have tacitly allied with people who don’t want to embark on reform at all in order to thwart the possibility of a deal.
Some possible deals would deserve to be blocked. But delay is no accomplishment. The longer we wait to fix Social Security, the heavier on taxes a solution is likely to be. The present value of a fix will grow; the ratio of taxpayers to retirees will change to the disadvantage of the former; and Bush is likely to be replaced by a president who dislikes high taxes less.