The Corner

Re: Social Security Puzzle

My post yesterday has elicited some good responses.

#1:

Reforms like progressive price indexing hit high earners the most, but they also reduce benefits for middle earners. By raising the tax max, you can target the truly high earners. So maybe the problem with progressive benefit cuts is that they aren’t progressive enough.

Put another way, there’s a real limit on how much you can cut a high earner’s benefits — even if you zero them out it’s only about $25k per year, and that hits the $90k worker the same as the millionaire. But there pretty much no limit on how much you can increase a millionaire’s taxes. Impose the payroll tax on a million dollar earner and that’s an extra $125k per year in revenues. Rubber meets road, that might be what’s really going on.

# 2:

Yes, if conservatives could implement their favorite Social Security remedies (such as the progressive indexing GWB endorsed in 2005) the affluent will see their benefits reduced while their taxes remain the same.  If liberals get their fixes, the rich will pay higher taxes and receive the same benefits.  Either way, Social Security becomes a worse deal for the upper quintile.   

So, in the first place, why should it matter to liberals whether Social Security becomes a worse deal for the rich in the one way or the other?  The rule here is, “Not one step backward.”  The lesson of the 2005 liberal victory on Social Security is that they have no interest in the question raised by Mickey Kaus at the time: “Universality is extremely expensive,” he said.  Devoting a large portion of our GDP to mailing “Social Security checks to rich and poor alike” can’t possibly be “the highest and best use” of it.  Such arguments are of no interest whatsoever to liberals who have spent decades wresting GDP points away from the private sector for the public sector to use.  Any “reforms” of the welfare state that re-privatize those points, or lead in any direction but the acquisition of additional GDP points by the public sector, are non-starters. Secondly, why should liberals believe the rich will continue to support Social Security if it becomes a worse deal for them because of tax increases, but threaten to start looking for exit doors if it becomes a worse deal because of benefit cuts?  Or, as you ask, do they think the rich can’t do math?  The short answer is, yes, that is what liberals think.  The longer answer is, why should they think differently?  Social Security has been a bad deal for affluent Americans for 72 years, but the defense and steady expansion of the program has never been any sort of political liability for liberals.  The portion of the payroll tax devoted to Medicare was capped until 1993, but now applies to every dollar of income.  I don’t remember any outcry, then or since.  This tax increase never makes the list of reasons for the GOP victories in November 1994.  And no conservatives I’m aware of are trying to re-cap the Medicare tax. Just because liberals never have paid a political price for Social Security taxes doesn’t mean they never will, however.  Abolishing the Social Security Wage Base, as Sen. Obama suggested, would be a huge tax increase – a 12.4% surcharge on all income over $100,000.  It would affect one in every six households.  It would, additionally, be quite awkward, given that the liberal party line on entitlements is that Social Security is fundamentally sound, and entitlement reform really means health care cost controls to bail out Medicare and Medicaid.  That’s a big tax increase to fix what we’ve been assured is a very small problem.  If conservatives can’t turn such contradictions into a teaching moment, we deserve a long walk in the wilderness.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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