The Agenda

Is Paul Ryan Punting on Social Security?

Ezra Klein thinks that the answer is yes:

Looks like Social Security will get a pass in Paul Ryan’s upcoming budget. I’d say this is evidence for my argument that there’s some real opportunity in Social Security reform right now. The things Paul Ryan would like to do to Social Security — privatize it, dramatically cut its benefits — are very unpopular right now. The thing he wouldn’t like to do to Social Security — lift the payroll tax cap, thereby wiping out its shortfall — is very popular. So Ryan would prefer to keep Social Security off the table, because if it goes on the table, he’s likely to get an outcome he doesn’t want — either political defeat or higher taxes. I think that’s probably a smart play on his part. But it implies that this might be a good time for Social Security’s advocates to pursue reforms they actually like.

I’m more inclined to agree with Yuval Levin at The Corner, which isn’t exactly shocking news:

This article in The Hill today offers some early details about the Ryan budget. It suggests that Republicans will call the Democrats’ bluff on entitlement reform, making use of the strange posture that Harry Reid and other Democrats have adopted by which they deem Social Security (which for all its troubles is the least troubled of our major entitlements) off limits while remaining silent on the collapsing health-care entitlements. The Ryan budget, if this report is accurate, will require the president to propose Social Security reforms but will itself propose detailed and profound reforms of Medicaid and Medicare. The federal share of Medicaid would be transformed into a block grant to the states—giving the states more freedom to design their programs while saving the taxpayer hundreds of billions of dollars. In Medicare, meanwhile, they would leave the benefits of those now retired and nearly retired as they are but for younger people would transform Medicare into a defined contribution program which, rather than directly paying for services in an open-ended way, would give each senior a set sum of money to purchase private health insurance of his choice. Such a reform would not only offer immense savings directly and give seniors more options, it would also introduce far greater efficiency among providers that would help contain costs in our larger health-care system. And by leaving today’s seniors and near-retirees as they are, this approach could neutralize the foremost source of opposition to entitlement reforms.

Note that these perspectives are not incompatible. But Yuval is suggesting that Medicaid and Medicare are by far the more pressing issue, thus making a focus on those programs defensible on substantive as well as strategic grounds. 

I’ll add that while Ezra’s approach to reforming Social Security might be politically popular — I’m not certain that would prove true if a serious proposal were unveiled, as many voters who won’t pay the surcharge might nevertheless oppose a steep increase in effective marginal tax rates up the ladder, because they see themselves as upwardly mobile or because they’re anxious about the broader consequences — there are many potential pitfalls, as Andrew Biggs argues. First, Andrew quotes Ezra’s latest column on fixing Social Security:

A simpler solution perhaps would be to uncap the payroll tax that funds Social Security. Right now, income over $106,000 is protected, meaning someone making $80,000 pays payroll taxes on every dollar of income while someone making $1 million pays on barely one of every 10 dollars. Does that make sense to you? Yeah, me neither. Uncapping it would pretty much wipe out the shortfall on its own. Add in some changes to the benefit itself — perhaps benefits for the wealthy could grow more slowly, as they rely on it less — and you’re done. Social Security is fully funded.

Andrew adds:

[A]s I point out in a recent AEI Retirement Policy Outlook, this “full funding” would rely on the same trust fund buildup/drawdown that a number of respected economists have found to be an accounting mirage that merely subsidizes current consumption. In other words, if we lift the cap, it’s most likely that the surpluses generated in the short term will produce higher spending or lower taxes than otherwise would be the case, leaving no real saving to pay benefits in the long-term.

Moreover, lifting the cap would lead to some scary marginal tax rates. In my AEI outlook, I calculate that the maximum marginal tax rate on earned income, inclusive of federal income taxes, state income taxes, and payroll taxes, would rise to an average of 62 percent, ranging from a “low” of 57 percent to a high of 68 percent, depending on state. I really don’t mean to be rude, but if you’re into “economic and domestic policy, and lots of it” wouldn’t marginal rates at this level—before, mind you, we’ve done much of anything to fix the larger Medicare and Medicaid gaps—be just a little bit worrying?

I suspect that opponents of lifting the cap could make an effective case in the court of public opinion. The danger for conservatives is that it is very hard to fight on every front, and the case for focusing on Medicaid and Medicare is strong. 

Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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