Political wisdom holds that you can’t beat something with nothing. But when it comes to Social Security, the Democrats are putting that truism to the test.
Politicians across the political spectrum, from President Clinton to President Bush have agreed that Social Security faces a serious financial problem. The basic facts are undisputed: the Baby Boomers are starting to retire and we are living longer; that means Social Security’s expenses are climbing. The growth of our workforce hasn’t kept pace with growth in the number of Social Security beneficiaries; that means payroll tax receipts soon won’t cover all of Social Security’s obligations. The deficit starts in about ten years and gets worse each year thereafter.
People may quibble about the exact numbers and magnitude of the deficits, but everyone recognizes that a problem looms and needs to be addressed. So what do politicians propose doing about it?
This week, presidential hopeful Barack Obama penned an op-ed providing insight into what he might do as President to reform Social Security. Most of his piece focused on what he would not do to solve Social Security’s problems: “First, I will fight against efforts to privatize Social Security…Second, I do not want to cut benefits or raise the retirement age. I believe there are a number of ways we can make Social Security solvent that do not involve placing these added burdens on our seniors.”
In other words—as anyone who seeks the Democratic nomination must—Senator Obama bows to the powerful AARP senior lobby, vowing not to do anything to affect the payments given to this richest cohort in our society. He also promises them a tax cut for good measure.
The only change he recommends considering for Social Security is to raise taxes. Specifically, he proposes eliminating the cap on the amount of income taxed for Social Security. He claims: “If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall.”
Yet this massive tax increase would not, in reality, eliminate Social Security’s deficit. Under current law, the highest earners’ benefits are calculated based on the amount of income they paid payroll taxes on. If the wage cap were eliminated, and Oprah Winfrey, Bill Gates, and other multi-millionaires paid taxes on all their earnings, then the amount that they would be due at retirement would also soar. A recent Social Security Administration study of eliminating the wage cap found that this massive tax increase would only give Social Security an extra seven years before beginning to run deficits.
Senator Obama may also be considering changing the benefit formula so that benefits are not calculated on the entire amount of income taxed. This would be a significant change in the system, eroding the concept of Social Security as an earned entitlement, and a big benefit cut for future seniors. Moreover, even with this benefit cut for upper-income retirees, a substantial deficit would remain. The tax increase would also significantly increase marginal tax rates on millions of Americans, including small business owners, discouraging productivity and slowing economic growth.
Another presidential hopeful, Senator Hillary Clinton, has taken a different tack in discussing Social Security’s future. She has chosen to solely talk about what she won’t do to change the system. Clinton has said she won’t “privatize” the system, by allowing individuals to save their money through a system of personal accounts. She also won’t raise the retirement age, reduce benefits, and has even shied away from supporting tax increases like the one proposed by Senator Obama.
Her campaign website essentially ignores Social Security. Her senatorial website provides empty platitudes such as “I think it is essential that the Administration and Congress take the necessary steps to secure the solvency of this important program for current and future retirees,” but doesn’t offer any actual thoughts on how to accomplish this considerable task.
Who has the better tactic? Senator Obama with his massive, economy-slowing tax increase, or Senator Clinton with her policy of neglect? Only time will tell who the winner of this political contest will be. But we know who the losers already: our Social Security system and the American people.
–Carrie Lukas is the vice president for policy at the Independent Women’s Forum and the author of The Politically Incorrect Guide to Women, Sex, and Feminism.