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A Man, A Plan, A Canal, Social Security

Do the Democrats need an alternative plan? In a word, "no." For one thing, it would be bad politics. There's no doubt a long-winded proof of this that could be written. The short proof is that the GOP is sinking on this issue and all of a sudden conservatives are begging Democrats to come up with a plan. Well, guess what, conservatives have the best interests of neither Social Security, the United States of America, nor the Democratic Party at heart. Don't listen to them. For political purposes it's possibly worth keeping a Senator or two around who at least pretends to have an open mind so we can get the President to introduce an actual, specific plan.

It's also pretty dubious policy. The only possible alternative plan the Democrats could put forward would be to increase the extent of Social Security pre-funding. In principle pre-funding, as epitomized by the '83 reform, is a good idea. In practice, the '83 reform was part of an elaborate 22 year-long boondoggle to decrease taxes on the wealthy, increase taxes on the poor, and gut Social Security. At some point in the future, the GOP may regain enough credibility on this issue to make the concept worth revisiting. That point is not now. The only policy objective related to changing Social Security that Democrats really need to be pushing is increasing General Fund revenue so that the last round of pre-funding can be implemented as Ronald Reagan promised it would be.

Which is not to say that Democrats don't need a positive alternative for the country on domestic policy, which they clearly do. An agenda for deficit reduction, yes. An agenda for private sector pension reform, yes. An agenda for broadening asset ownership, yes. An agenda for health care reform, yes. But an agenda for Social Security beyond "don't kill it!" -- no.

March 14, 2005 | Permalink


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no, no, not a "boondoggle." a "swindle."

and actually, there is another thing the Dems can do: they can say that if bush wants to wander around insisting upon the funigiblity of payroll taxes and the nonexistence of any debt from the general fund to the social security trust fund, then payroll taxes should be cut, immediately, to the true "pay-as-you-go" level.

Let's make it clear exactly what kind of swindle bush/greenspan are trying to pull here through judo methods: going with their arguments rather than resisting them.

Posted by: howard | Mar 14, 2005 1:12:38 AM

I just don't understand how any more prefunding can possibly be a good idea?

And how on earth was prefunding ever a good idea, considering that the money is just used to reduce the interest rate on the debt and exists solely to supprt the general fund?

Unless Social Security tax system was totally reformed any prefunding at all is just further ribbing of the poor.

Posted by: Roy | Mar 14, 2005 1:15:07 AM

There is another option, which I've been pushing for a while, including down at Townhouse Tavern: arguing that the rest of the Democratic Agenda is exactly what we need to ensure social security is adequately financed. The Democratic agenda involves investing in workers, investing in education (pre-K through college), fixing the health care system, and preserving the environment. That agenda will ensure American productivity, GDP, and wage growth are adequate to avoid the pessimistic assumptions underlying the dire financial forecasts used to depict the "crisis."

The problem is that us Democrats see a problem, and propose a narrow, well targeted plan to ameliorate it. Republicans suffer from no such myopia, and each new problem is merely another opportunity to push their pre-conceived agenda. War in Iraq solves al-Qaeda; solves weapons of mass destruction, solve global democratization, etc.etc.etc. Neutering trial lawyers solves economic growth, fixes the health care system, and improves the stock market. Tax cuts solve every malady imaginable, including insufficient tax revenues.

Arguing that the Democratic agenda will solve social security will be met with some skepticism, especially if done half heartedly. Yet Republicans manage to do it, without having a major asset held by Democrats: truth.

Posted by: Dave M | Mar 14, 2005 1:49:57 AM

I like the idea that prefunding is the policy of Ronald Reagan. So you have Democrats fulfilling Ronald Reagan's promises and Republicans working to destroy them. Someone inventive could get a slogan out of that.

Posted by: Chris | Mar 14, 2005 1:52:43 AM

Ah, in other words, raise taxes!

If we run on that platform in 2006, we deserve another butt whoopin'.

Posted by: Adam Herman | Mar 14, 2005 3:24:38 AM

A man, a plan, a cat, a ham, a yak, a yam, a hat, a canal: Panama.

Posted by: bad Jim | Mar 14, 2005 5:55:48 AM

The Democrat's plan is the plan that the Republican hack Greenspan assured us in 1983 would save Social Security. Why should the Democrats provide a plan that is different than the one that had been proposed by the Republican hack?

Posted by: raj | Mar 14, 2005 7:05:52 AM

This is no good, Matt, because it clearly puts the Dems in a position of raising taxes and raising taxes only.

Better to come up with some sort of bold yet completely unrealistic plan that sounds awesome to the average voter, but never needs to be implemented.

Posted by: praktike | Mar 14, 2005 7:19:52 AM

I disagree with Matt

I think the Democrats should propose a reform which consists entirely of eliminating the cap on the payroll tax. There is overwhelming support for such a proposal in every poll on the issue. It would cover the social security shortfall for, at least, the next 75 years.

Matt's against is that prefunding is a fraud so an increase in FICA is just like an increase in an other tax. Then he concludes arguing that Democrats should instead propose reducing the general fund deficit by increasing some other tax. That is two things are the same and therefore one is better than the other.

I accept the general rule of political strategy that one should avoid specific proposals about spending cuts, one should not take strategy advice from ones adversaries and one should not distract attention from Bush while he is trying to defend a terrible and unpopular proposal.

Every rule has an exception. The elimination the cap is such excellent policy and such excellent politics that it is an exception.

Posted by: Robert Waldmann | Mar 14, 2005 7:24:44 AM

The Democratic reponse should be:

"There is too much partisan feuding in Washington. Democrats are willing to work with Republicans to create a bi-partisan plan that both parties can support. Democrats will not put forth a separate plan without our republicans colleagues."

Posted by: EG | Mar 14, 2005 9:17:15 AM

The obvious plan is to join the class warfare for real. Propose that the inheritence tax, instead of being eliminated, be used to fund SS--and make sure we explain who it really affects. Slap a 20% SS tax on all income over $500,000, regardless of source. Means test social security so that only those seniors with incomes of less than $100,000 receive social security. That should fix it forever.

I am only half kidding. Actually, I think the consistent message from the Democrats, and for the life of me I can't figure out why they aren't putting it out, should be:

"We'll offer a plan when the president does. So far all he has proposed is "personal accounts". Even if personal accounts have merits, they do nothing to address the long term solvency of the system, as a matter of fact they make it worse. When we know how he plans to address the solvency issues, then we can offer counter-proposals. Until then, discussion is pointless."

Posted by: Freder Frederson | Mar 14, 2005 9:22:01 AM

A purely reactionary approach, in the worst sense.

How surprising.

Matt will go on and on insisting that the last generation always deserves more than the next, forever. There's really no talking to him.

Posted by: Thomas | Mar 14, 2005 9:28:06 AM

What Robert Waldmann said. If the Republicans are going to cheat on payroll tax pre-funding (i.e. treat it as if it were the same thing as the rest of the federal government's tax revenue), then we might as well just go ahead and make the payroll tax progressive (or at least, less regressive). It accomplishes both of our goals at once - solving the funding problem and making the tax system more equitable.

Posted by: JP | Mar 14, 2005 9:32:55 AM

Countless people still think there is a "trust fund" with real assets in it that is being held for them until they're old enough to collect retirement payments. It's time they learn the truth. As Harvard economist Martin Feldstein has noted, the system's solvency "is based on a
complex accounting sham so duplicitous that it is hard to believe."

When Social Security runs a surplus, the money is taken to pay today's general budget bills, and Treasury securities are deposited into a filing
cabinet in a federal building in Parkersburg, W.Va. All those securities do is represent the government's promise to someday repay the money.

That, of course, can only be done by raising taxes, printing money or borrowing money from the public, exactly the same alternatives the feds would have if there were no "trust fund."

Posted by: RealityBasedinNJ | Mar 14, 2005 9:46:01 AM

If that's true then cut the payroll taxes immediately. There's no sense in throwing good money after bad.

Posted by: Tim H. | Mar 14, 2005 10:06:31 AM

An alternative plan?!

Bush needs to put a plan forth. He is trying to trick the Democrats into doing it. It is HIS responsiblity to do this. Their is no urgency here. If we don't deal with SS under this administration, the first we hear of the problem will not be a "mushroom cloud", whatever the Bush partisans say.

Posted by: epistemology | Mar 14, 2005 10:29:06 AM

realitybased, that's exactly why i said that if what you argue is true (and we'll return to that), then, as tim has now echoed, let's cut the payroll tax.

but i don't think that feldstein and the other yahoos are correct, although there is no constitutional clarity on this. The gas tax that funds the highway trust fund, for instanced, is NOT fungible: if we ever run out of highways to build, the tax goes away. It doesn't just become part of the general fund.

There have been two supreme court decisions that i'm aware of on social security: the first (in '37, i think it was) upheld its constitutionality but said that the tax receipts were collected like income tax and weren't earmarked. The second (in '60, iirc), said that yes, the taxes weren't earmarked, but, in fact, it was law to transfer the equivalent amount to the trust fund every year.

My read of all this - and i am not a constitutional scholar - is that feldstein et al are full of it, that this is a special-purpose tax whose suprluses can't be distributed away just because bush and delay and norquist want to, and that if congress ever fails to honor those special purpose bonds, it will be unconstitutional (on the other hand, cutting benefits is constitutional).

But more broadly, taxes do have to go up. The irresponsibility of Bush cutting them the way he did must be reversed, and not just for social security purposes. Fear of the dems to state this will, ultimately, be used against them far worse than actually raising taxes on the upper 2% of income earners and restoring the inheritance tax.

Posted by: howard | Mar 14, 2005 10:36:28 AM

Re: there is no trust fund.

We didn't just make a bonfire out of the extra money collected from the payroll tax, we used it for stuff. In many cases, stuff that increased our national standard of living. Just think how much worse off our country (especially the rich people in our country) would have been if we hadn't collected the extra money.

Unfortunately, this infusion of money over the past 20 years, and the next 10 years, comes with a price, and the price is that we now have to pay it back, even if it means higher taxes and/or deficits. Not a pleasant prospect, and not easy for politicians to tell the public, but it's the only fair option.

Maybe Democrats can try to adopt rhetoric similar to what politicans say about a war. "There is going to be some pain", that kind of thing. "As a nation, our only moral course of action is to pay back the trust fund to the workers who have been sacrificing for 20-30 years in order to fund their retirement. Now it is our turn to make the necessary sacrifice..blah blah blah"

Posted by: cs | Mar 14, 2005 10:42:59 AM

Re: there is no trust fund.

Could we not solve this canard by pushing to have the government exchange the bonds in the trust fund to the value of the surplus for 'real' government bonds ie. marketable general fund bonds?

This would 'harden' the implicit bargain of the 80's FICA tax increase, eliminate the 'double accounting' of the surplus and increase pressure to curb spending without increasing overall general fund indebtedness.

Posted by: postit | Mar 14, 2005 11:12:55 AM

Bush is the big idea president. How about we debate the big idea behind Social Security: Should the government be in the business of providing for the common welfare, particularly of its seniors?

Guarantee a Social Security safety net to the elderly? Yes or no? That is the issue for most. Not wonkish debates about the meaning of the trust fund.

Posted by: epistemology | Mar 14, 2005 11:22:18 AM

It is astonishing that any Democrat would say the Democratic party does not need to offer an alternative to fix the Social Security system.

Do you really want to play into Karl Rove's hands?

Posted by: Kevin Gregory | Mar 14, 2005 11:33:02 AM

Does this "elaborate 22-year boondoggle" have any relation to 22 years of unprecedented prosperity? Or is that just a malign coincidence?

Posted by: sammler | Mar 14, 2005 11:41:58 AM

It is astonishing that any Democrat would say the Democratic party does not need to offer an alternative to fix the Social Security system.

Alternative to what? Besides personal accounts and declaring that social security will be bankrupt (a lie) or broke (a lie), Bush has only offered an underpants gnome* plan for saving social security. In fact this is the underpants gnome administration as all their plans take on the same pattern. In this case it is:

1) Personal accounts for social security.
2) ????????????????????????
3) Social Security is solvent for ever!

*If you don't understand my reference you obviously don't watch South Park.

Posted by: Freder Frederson | Mar 14, 2005 11:43:32 AM

epistemology--Yes, let's have a debate. But let's debate how we can assure seniors a decent standard of living in retirement, without impoverishing younger people. The current system isn't sustainable, in that, given current demographic trends, it will require ever-increasing taxes on young workers, which itself exacerbates the demographic trends.

(What that means is that someone 33 years old, like me, will have to pay more than someone 66, and that my children will have to pay more of their income into Social Security than I did, and so on. Ultimately unsustainable, in a mathematical sense.)

I want a good retirement for seniors, and in particular for low-income workers in their retirement years. But I don't want my kids to be faced with significantly higher taxes than we pay today. It's not fair to them, and all the rhetoric in the world won't make it fair.

Posted by: Thomas | Mar 14, 2005 11:46:47 AM

At a birthday party at Chuckee Cheese's with my daughter, I met somebody from a DC think tank. There was a birthday show going on, *very* loud. When it got a little quieter I pointed to the Chuckee Cheese mascot. "Is that a rat?"

"That's Chuckee Cheese. Just like on the sign outside."

"Yes, but is it a rat?"

"It's a rat or a mouse."

"Out of all the animals they could have had, how did their marketing people think to use a rat?" The big manikin wiggled its long nose and batted its eyes like it knew that it was cuter than a thousand children. I tried to imagine somebody inside wearing that big head as a mask. I could see two tiny irregularities on the face at what would be eye level on a human, that seemed too far apart and way too small for eyeholes. But then, it could be a fiber optic deal. Spread them out on one end and you'd get a wide field of view, but the perspective would be off. You'd have to learn how to walk with that.

"That's true. They could have used a rabbit or a kangaroo."

"Or even a raccoon. Say, I overheard you talking about social security. Do you write to publish?"

"Yes, sometimes. We're just a little think tank, we only deal with one issue, but I'm writing a paper about how social security affects our issue and vice versa so I've spent a few weeks finding out about it."

I said, "Good. We need more people to understand about that, though it doesn't take much to understand how it relates to the Bush administration."

"The media has been doing a piss-poor job of reporting this. The issue isn't anything like what people think it is."

"Yes, I'd been hearing about that from blogs and such, but I didn't study it in detail myself."

"They say it has a long time before it goes into crisis, but really it goes broke in 2017. They want to count one point seven trillion dollars in treasury bonds as assets, plus interest. And the government won't be able to pay those bonds, so they aren't really assets for social security. I don't trust the Bush administration, but they're right about this."

I said, "Why do they talk about social security and not medicare?"

"Medicare would be an even harder problem so they're going after the easy one first. And social security is in deep trouble in 2017."

"Well, but that isn't something wrong with social security, that's something wrong with the budget. Why is the US government spending so much more than we collect?"

"I'm a moderate and I don't say whether taxes are too low or too high. But yes, there's a problem with that and it's going to hit social security in 2017. They can't count those t-bonds as assets. This business of the government loaning itself money is just wrong."

"Well, there's a simple solution about that for social security. Just sell all the t-bonds and buy commercial bonds. Then social security wouldn't be loaning money to the government. We'd get more interest from them too because there's the chance they might default while government bonds never default. US bonds are the safest investment there is."

"Um, it used to be that way."

I said, "It still is. Do your really think the US government would default on its bonds? That's something sleazy third-world countries do. You don't really want our bondholders to think that, do you? So anyway, social security could sell all its t-bonds and buy commercial bonds, and bonds from the british government and the german government and all like that. There isn't any danger that britain will default on their bonds, or germany or japan or india. It's only the USA that's in trouble."

"But if social security sold their bonds the government would be in deep shit."

"Yes. It isn't social security that's in trouble, it's the federal budget, and a long time before 2017."

He thought. "Well, when you look back at how it got this way it wasn't just republicans and it wasn't just recent. I'd put the blame about 50:50."

I said, "Yes. But who are you going to trust to get us out of it? The Bush administration has shown us they're liars and thieves. They're talking about social security instead of medicare because social security has money they want to steal, and medicare doesn't. We can't get a start on a solution for another four years. We need a reform government and I don't care whether it's republican or democrat, but the people who got us into this aren't going to get us out. Certainly not under Bush's leadership."

"Excuse me, I have to take my son out to play the Chuckee Cheese games and win tickets."

Awhile later I met him in the aisle as he was returning to the table. I stuck out my hand. He seemed surprised for a moment, then he shook my hand. "Good conversation!"

I was particularly heartened by the "I don't trust the Bush administration but" trope. The Bush administration is losing their veneer. Republicans will keep supporting as long as it's in their individual short-term interest to do so, but the point of diminishing returns is coming closer.

Posted by: J Thomas | Mar 14, 2005 12:12:40 PM

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