So it’s welfare, then... Posted by: Jon Henke
on Friday, April 29, 2005
Weird. For four years, the Left has been complaining that the Bush Administration was 1) letting the deficit spiral out of control, and 2) constructing every policy to make the rich richer.
So, lastnight, Bush makes a Social Security reform proposal that would 1) help control the deficit, and 2) cut benefits progressively more as incomes rise, while hurting the poor little if at all. And the response is...outrage?
"cutting the shit out of your Social Security benefits."—Atrios
"cut pretty much everyone's benefits a lot. The sweetener? Poor people's benefits won't be cut as much!"—Josh Marshall
What the...?!?! The President has proposed what amounts to means-testing Social Security benefits, and the Left call it "Goodbye Social Security, hello welfare", while the Right calls it "moderate and reasonable".
Who turned my world upside down?
James Joyner notes that "if Bill Clinton had made this proposal, conservatives would almost surely be crying 'Socialism!'", but I think they'd have been in full-throated "welfare-state lovin' Commie!" mode had Clinton recommended such a redistributionist policy.
Actually, if you want to see how far we've gone, check out what Bill Clinton actually did say about converting Social Security into a more brazenly wealth-transfering scheme.
People at higher income levels pay higher tax rates on their Social Security incomes than people at lower income levels. And I think that's—one of the reasons that the cap has not been raised at least a dramatic amount more is to avoid having it be an actual negative investment for the people involved, where you're just taxing people's payroll far more than they'll ever get back and they're just subsidizing the system. The way it is now, it happens a little bit, but not much. And people at higher incomes, once they start to draw that Social Security, do pay a higher rate of tax on it than people at lower incomes.
Seven years later, and what do we have? A Republican President has decided to tax "people's payroll far more than they'll ever get back", so "they're just subsidizing the system".
Meet the New Boss. Worse than the Old Boss.
So, what's the fiscally conservative/Neolibertarian case for this policy? Er. That's a toughie. Nathan Newman makes one case...
...apply inflation-indexing only for higher-income retirees, allowing their social security benefits to decline relative to wages over time to the point that social security would be only a token part of their retirement package.
Which is the goal. Once social security is significant only for low-income workers, it will be a lot easier propose cutting it even more.
i.e., wean taxpayers off the notion that Social Security is their retirement plan, which should encourage more personal responsibility in retirement planning...and, presumably, more personal savings. And since this would help bring down the long-term deficit, it should also mean an increase in aggregate savings! Brilliant! (I think Newman had another, less cheerful, adjective in mind, but whatever)
Here's the other argument for this plan: it's late, and the good options have left the building. Among the bad ones, this may be the best, least destructive, option left.
UPDATE: For a few days, we're going to hear a lot about this "benefit cut". Of course, since the Trust Fund will run out eventually—and the actual assets to pay full benefits will run out much sooner—that money is going to have to come from somewhere. So, let me point you to Atrios for a bit of perspective:
...at some point around 2045 (depending on which estimate), the system is predicted to only be able to pay out 75% of promised benefits. Of course, that 75% of promised benefits is still going to be equal to or higher in real terms than current benefit levels. So, while there would have to be a drop in payouts if no changes at all were made in the system, that drop would still lead to benefit levels roughly equal to or even greater than current benefit levels.
He is, of course, now complaining about a "benefits cut by 25% in 2045". Black indicates that this plan is "worse in the long run" than cutting the benefits all at once in 2045, but it's hard to see how, unless he's recently decided that, in the meantime, "deficits don't matter".
As I keep saying... both the left and the right have Bush tagged wrong... particularly the left. He’s not the right-wing monster they portray him as.
Still, he’s better than Kerry, or Gore.
And that misperception on his relative position is causing some weird readings from the wingnuts like, well, Atrios, for example.
A lot of the center- right understand he’s playing from the middle, and are willing to play the line for now.
That the Democrats are rejecting such proposals... particularly when had Bill Clinton made them, they’d be singing his praises, tells me that fairness and compromise is not what they’re about and never has been.
I have to agree that the current behavior of the Democrats over this is disgusting, and for all of their complaining they have yet to propose a single workable solution to the problem.. as far as they have even been able to admit that there is a problem.
I think the Bush proposal of last night was fairly reasonable, so long as the private accounts funded via social security revenue is taken off the table. Afterall if the system is in such a crisis, and it is, effectively adding millions of young people onto the SS payrolls via private accounts isnt the greatest idea. That isnt to say, however, that there is not a huge amount of wisdom behind a defined-contribution pre-funded system, its just that the Bush proposal at the current time dosent accomplish that.
I think its time for Democrats to start playing ball, as this is the most reasonable gesture Bush has made to them for quite some time.
Have any of you guys heard of the Ryan-Sununu Plan?
* 1% cut in the rate of growth of government spending each year * very large personal accounts - 10% (out of the 12.4%) of your first $10,000 earned, and 5% on all taxable wages after that, can be diverted if you like (and you will, keep listening). * personal accounts similar to the Federal Thrift Savings program * guaranteed, you still get the same benefits promised to you under current SocSec law, if your account fails to perform. *when the unfunded liability of SocSec is paid off, the bill triggers an automatic payroll tax cut.
Under the Chief Actuary’s official score, the Ryan-Sununu Plan results in no benefit cuts, the biggest tax cut in world history, and eliminates the current unfunded liability of SocSec, all while maintaining enough money to pay Disability and Survivior’s insurance AND develop permanent and growing surpluses by 2030.
* Under the Chief Actuary’s score, which doesn’t exactly use pie-in-the-sky predictions on stocks and bonds, the tax cut (starting 2045, when the Actuary projects the surpluses would pay off all the bonds used to pay off the transition) would be gargantuan. The cut would bring that 12.4% rate down to 4.2% by the end of the 75-year projection period.
This is the kind of plan only a second-termer could put forward, one everbody’s going to have to agree will resemble the kind of sacrifices our generation(s) will make to mollify the frightened, greedy elderly of today.
So today’s seniors make no sacrifice, today’s earners get it in the ear, kids get a chance to invest to make up the difference. I support this guy, but this medicine is hard to swallow.
Offering such a plan, with means-testing just flopped out there to open negotiations means the final result is going to be much worse. Look around you—already suggestions are that this would be palatable if the private accounts are dropped but with an add-on system instead. Pfft.
All that aside, the Democrats are going to have to come to the table now. I don’t think Duncan Black is speaking to anybody but morons who think we can just tax our way out of the problem.
I have an even better plan: more progressive and much simpler.
1. Base the benefits on age only. Burn the records. Get rid of the entitlement mentality. 2. Fund SS with a consumption tax instead of a labor tax.
#1 would be a raise in benefits for those who were poor all their lives and a cut for those who were rich all their lives. Since those who were poor are probably getting other benefits besides SS upon retirement, this upshift is probably less expensive than it looks at first glance. Giving a floor to everyone based on age reduces the number of people on Medicaid, Food Stamps, etc.
#2 provides an implicit IRA without any government supervision. In fact, we can eliminate the IRA and 401(k) provisions from the tax code. If you are saving, you are not consuming.
—- We can simplify even further and be more politically correct by our choice of consumption tax. Instead of a national sales tax, I would go for excise taxes and tariffs on fossil fuels: coal, oil and natural gas. With the resulting boost in oil prices, we can starve out the terrorists, and close down all the federal subsidies for energy research and conservation. The market will provide.