Bernie Sanders Social Security Proposals: Fairy Tales

No cuts for anyone, increased benefits, higher taxes to pay for it: And Hillary agrees.

President Obama has a mixed history on Social Security reform: He has taken seemingly responsible positions only to wilt under pressure from the left wing of the Democratic party. In a speech in Elkhart, Ind., on Wednesday, Obama followed Hillary Clinton and bowed to a Bernie Sanders–led movement to expand Social Security. This is only the latest in a series of missed opportunities by the president. On Social Security, the federal government’s largest program, Bernie Sanders has shown himself to be the true leader of the Democratic party.

As a senator, Obama described Social Security’s funding shortfalls as a “crisis,” and among his 2008 campaign advisers were some Democratic experts who are relative moderates on Social Security reform. But during the 2008 Democratic primary, Obama received pushback from liberals on his openness to Social Security reform; following this, his rhetoric and his policy ideas became more conventionally progressive, at least by the standards of the time. During the 2008 campaign, Obama’s sole policy idea on Social Security was a 2–4 percent payroll surtax on individual earnings above $250,000, an idea that today would fix about one-fifth of the long-term Social Security shortfall. Obama hasn’t mentioned the surtax proposals since the 2008 campaign.

Once in office, Obama established the Simpson-Bowles entitlement commission to generate reform ideas and, more important, to provide him some protection against political attacks from his left flank. Some protection, alas, but not enough: The Simpson-Bowles commission put forth a compromise Social Security reform plan that was roughly split between tax increases and benefit reductions, but even that was not enough. President Obama walked away from the commission’s recommendations.

Later, Obama briefly flirted with the idea of reducing Social Security Cost of Living Adjustments (COLAs) by pegging them to the slightly lower — but probably more accurate — “chained” Consumer Price Index. The chained CPI is designed to better account for how consumers shift their purchases — say, from applies to oranges or from chicken to beef — as prices change. I wasn’t a big fan of the idea, because it would cut benefits for the oldest retirees while leaving younger, better-off retirees untouched, but it’s true that cutting COLAs would be an effective way to put a dent in the Social Security funding gap. Again, however, progressives were having none of it: They harped on President Obama for proposing benefit cuts, and the president again gave up on the idea.

But still, up until now President Obama seemed to recognize that Social Security must involve both tax increases and benefit cuts — that reform can’t be all tax increases, and reform shouldn’t make the system more expensive. But so did Hillary Clinton, whose 2016 presidential campaign maintained until recently a fairly nuanced position on Social Security reform. While Clinton named several policies she opposed — such as cutting COLAs or increasing the retirement age — she didn’t rule out benefit cuts for higher-earning retirees.

The idea of a “grand bargain” between the Left and the Right is seemingly gone.

Until, of course, Clinton flip-flopped and did rule them out. Expanding Social Security — and paying for those benefit increases partially through big tax hikes — has been one of the Vermont socialist’s key proposals. Sanders adamantly opposes any benefit cuts for anyone and proposes benefit increases for many. The once-fringe idea of making Social Security benefits more generous appealed to a progressive base tired of what (to them) seemed the moderation and compromise of President Obama’s approach. Despite Hillary Clinton’s massive electoral advantages over Sanders, she must have felt she couldn’t hold the line against Sanders’s position. In February, Clinton tweeted: “@Bernie Sanders I won’t cut Social Security. As always, I’ll defend it, & I’ll expand it.”

Which left only one man standing: President Obama. But in his speech Wednesday Obama spoke about Social Security reform for the first time in recent memory. “It’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,” he said. “And we can start paying for it by asking the wealthiest Americans to contribute a little bit more. They can afford it. I can afford it.”

This shows how far the politics of Social Security have shifted to the left. The idea of a “grand bargain” between the Left and the Right is seemingly gone.

#share#But perhaps only for now. The reason is simple: The tax increases required to make Social Security solvent without benefit cuts, while also raising benefits, are simply not going to happen. They’re unpassable, even in a Democratically controlled Congress. And for Hillary Clinton, who today has embraced such tax increases, they could be a political millstone in the presidential campaign.

The tax increases required to make Social Security solvent without benefit cuts, while also raising benefits, are simply not going to happen.

Consider Bernie Sanders’s reform proposal — which, to be clear, doesn’t even make Social Security solvent for the long term. Sanders would phase out the $117,000 “tax cap,” which currently limits the taxes that workers pay on their earnings as well as the benefits they accrue. Sanders would apply the 12.4 percent Social Security payroll tax to all earnings, effectively increasing the top marginal tax rate by 12 percentage points. Including the Medicare payroll tax and state income taxes, high earners in most states would pay to the government 60 cents on each additional dollar of earnings. American taxpayers would face some of the highest top rates in the 34 countries that make up the Organisation for Economic Co-operation and Development. Again, that’s for a plan that doesn’t even make Social Security permanently solvent, nor does it address the potentially larger funding challenges for Medicare and Medicaid.

On top of that, Sanders would impose a 6 percent surtax on investment income, effectively raising the capital-gains rate by 6 percentage points. The U.S. already has one of the highest tax rates on investments, when corporate tax rates and capital-gains tax rates are combined. Sanders’s investment tax would probably push us to the highest in the world.

The idea that Social Security expansion requires just “a little bit more” taxes from the rich, as Obama claims, is farcical. President Obama couldn’t pass tax increases even a fraction of this size, despite having massive Democratic majorities in 2009. It’s not going to happen now; nor would it under a Hillary Clinton administration.

#related#Which means that the Democratic party’s leadership — from the sitting president, to the presumptive presidential nominee, to the upstart challenger who has won the hearts of the party faithful — has embraced a completely unserious position on the federal government’s largest spending program, a program that imposes the biggest tax most workers pay and that composes the biggest source of income to most retirees. And this happens after eight years in which President Obama has accomplished nothing to advance Social Security reform. Instead, the program’s long-term deficits doubled from $5 trillion to nearly $11 trillion during Obama’s term in office.

Conservatives have been rightfully critical of Donald Trump for ignoring entitlement reform during the Republican primary. But since then, Trump’s advisers have signaled a willingness to look at ways to fix Social Security. It is unfortunate that the Democratic party, from top to bottom, is heading in the other direction.