Soc Sec - A Risk For Republicans

Ron Brownstein of the LA Times counts votes on Social Security reform, and doesn't find many.

He also highlights a subtle risk to tax-cutting Reps that may arise from this debate:

A more promising alternative might be to establish investment accounts as an add-on to Social Security, funded by a new source of revenue (like a small consumption tax), not the payroll tax.

Washington could subsidize contributions workers make to their accounts with tax credits, creating in effect a universal 401(k) plan. With those funds available to future retirees, both parties might agree to modestly reduce guaranteed Social Security benefits, and increase payroll tax revenue, to close the program's long-term financing shortfall.

Initially, Bush and most conservatives would probably resist add-on accounts — an idea President Clinton favored — as a costly new entitlement. But such accounts could offer Bush his best chance of promoting more ownership — and winning spending cuts that help stabilize Social Security's finances. If he wants a bipartisan Social Security deal — and not just a fight to organize around politically — they might offer his only chance.

Dems have not had much success promoting tax increases to "reduce the deficit" - my theory is that for the broad public, "the deficit" is someone else's problem, the pain is uncertain and diffuse, and tax hikes are real and immediate.

However, the Social Security debate allows Dems to suggest, in effect, tax hikes with personally-dedicated revenue.  "We aren't raising taxes to cut the deficit - this is YOUR RETIREMENT FUND!"

Folks might well say, "Hmm."  Rather than seeing the tax hike as representing their money pitched into a rat-hole, folks might well believe that they will get those taxes back - here is the tax bill, there is the personal account, very simple.

Eventually, because they are not terminally daft, Dems will suggest other taxes on "bad things", and dedicate the revenues to the Soc Sec fund.  Since everyone figures that Soc Sec will otherwise go bust, this will personalize the benefit of the higher taxes.  Well, that will be the sales pitch.

Irwin Stelzer suggested something like this in the Weekly Standard.

A truly radical reformer would consider alternatives to the job-destroying payroll tax system. After all, why tax a good thing, like jobs, rather than the many bad things that currently go untaxed? Two leap to mind: pollution and imported oil. Surely a reduction in the payroll tax, funded by a tax on either of those two items, would do more to stimulate economic growth, and to reduce the regressive character of the Social Security finance system, than would any of the reforms now being considered.

Well, the slippery slope is open - tax hikes, here we come.

(Not that that is a bad thing...)

Comments

[TM]

Did I make it all the way through that post without using the phrase "Pandora's Box"? Consider it done.

[Crank]

I did like the suggestion some years ago that employers should be taxed not on payrolls but on non-labor inputs. The main reason to tax payrolls is to keep the inputs tethered to the size of the labor force, but if you can install the private accounts option you begin to have a built-in sanity check anyway.

I accept that the final bill won't be ideal, but it should set us on the path to private accounts as a substantial source of government-compelled retirement benefits.

[Anon]

There will be no consumption tax. No Republican with any ambitions will vote to create a new tax category without eliminating some old tax category (e.g., trade consumption for income). And I doubt that Republicans will agree to make Social Security more progressive than it already is, so I can't imagine a link to income taxes. Which suggests a hike in payroll taxes--a proportionate hike and not a lifting of the cap.

The big thing from my perspective is cutting the growth in benefits so that benefits don't outstrip funds available. If that's done, then it doesn't seem to matter much whether personal accounts are created with borrowed funds or are fully funded using proceeds from tax revenues today.

Considering the real difficulties in reaching agreement on the funding for personal accounts, we're better of just brining benefits into line and arguing about the accounts for another 4 years.

[The Kid]

Irwin Seltzer is the one reason I stopped my subscription to The Weekly Standard some years ago. He fails to understand the effect of a large government – in terms of GDP consumption – on the economy.

It’s really quite simple to one who understands only a bit about human nature and economics. In 2018 Social Security payments will exceed payroll tax collections. The difference between what needs to be paid out and what is collected via the payroll tax will come out of general revenues, compete for other worthy expenditures like defense, farm subsidies, education, and the Public Broadcasting Corporation.

If we increase payroll taxes tomorrow, the increased revenue will offset the current account deficit and be applied against the national debt. It will not go into a savings account or lockbox that will store revenue and collect interest until 2018. A tax increase today does not help Social Security tomorrow.

To those who argue that decreasing the deficit and slowing the growth of the national debt is good and potentially frees up financing for 2018 forget that the primary objective of each member of the US Congress is to get reelected. To achieve this, most seek to bring home the bacon to the various interest groups that elect him. That takes money and that’s what the federal budget is all about: reelection. They’ll complain about the deficits, but make sure that they get taken care of. Don’t forget that even Clinton’s surplus was a “budget surplus” that did not include the various off-budget items; the national debt has grown steadily for years; Clinton’s surplus was an accounting gimmick just a shrewd as the Social Security Ponzi scheme.

Why tax imported oil and raise the cost of living for everyone? Why not drill in ANWR, open up federal lands to exploration, and issue more off-shore extraction permits? The beauty is that the development of oil reserves and extraction of the oil is done with private capital; when the oil starts flowing, the developers get their rewards and the federal treasury gets its due. The lower energy costs puts cash in everybody’s pocket to the detriment of foreign producers.

Tax pollution? Today pollution is in the eye of the beholder, no? Why raise the cost of living for everyone while giving the Kyoto-crisis crusaders an opening for their CO2 taxes? We’ll end up financing more unsightly and noisy bat blenders that we’ll have to turn off when the weather is humid.

With federal government participation in the economy hovering around 21% of GDP, some like Seltzer see little risk in a bump to 25%, especially if increased tax revenues can do some good. The very best it can do is slow down overall economic growth. It’s the private sector that generates productivity increases, real wage increases, and wealth. Take a coupe of points more for the government and you’ll soon have the stagnation that’s typical of the larger European economies.

If you really want to ensure that most folks can avoid poverty in their “golden years,” you’ve got to find a way for them to hold onto some gold and invest it. That’s the idea behind the ownership society and personal accounts. Native human self-interest and not too much financial savvy will let 80% of the population find some way to save. With the knowledge that a large portion of their Social Security is in some kind of safe account, many folks may get a little more adventurous with their private savings, their 401Ks, IRAs, and non-tax-sheltered savings. That will allow the economy to grow and produce the revenue needed to finance retirement and health care for the later years. The key is investment now for future growth so that funds are available when needed. As for transition costs, many folks would buy US Treasury Transition Bonds as part of the safe part of their portfolio, no?

[Forbes]

Democrats groaned when the President suggested that SS is bankrupt. The proof is the fact of the $10.6 trillion unfunded liability. This is truely not a debatable point. Tweaking taxes here, and benefits there, does not fix SS, it merely postpones the day of reckoning. And postpones that day onto later generations--including those not yet born. What could be more irresponsible (and immoral) than proposing to fix the Ponzi scheme that is SS?

A safety net that provides a welfare benefit for old age poverty--fine. Retirement income should be provided by accumulated individual saving.

[kim]

Tax me right into my own account. What's not to like?
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[kim]

The gunpoint, that's what.
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[kim]

Well, Somerby had a Laffer instead of a Howler last Friday. Still sneering at rubes voting other interests besides economic ones.

Bob: Charter schools, poor kids, Los Angeles. It's a New Year. Take a look.
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