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Reform Wreckers

A Republican Senator pushes Social Security tax increases. He's wrong.

Saturday, December 11, 2004 12:01 a.m. EST

http://www.opinionjournal.com/editorial/feature.html?id=110006013

President Bush's first term saw a noble effort at Medicare reform gutted on Capitol Hill. So we're glad to see that he has drawn an early line in the sand on Social Security reform, saying Thursday that "we will not raise payroll taxes" to achieve it.

In case you've been living in Al Gore's lockbox and haven't heard, Mr. Bush's big Social Security idea is to shift the system away from the current pay-as-you-go model, in which taxes on current workers are used to fund current retirees. At present tax and benefit levels, the increasing retiree-to-worker ratio will lead to a projected $11 trillion in unfunded liabilities (promises to retirees) over time. But if younger workers were allowed to invest some of their 12.4% Social Security tax in private accounts, where they could earn market rates of return, the shortfall would be eliminated over time.

The main obstacle here is a political bogeyman called "transition costs." We're not surprised to hear Democrats demanding a tax hike to "pay" for this reform, or that Senate Finance Committee Chairman Charles Grassley (a major villain in the Medicare debacle) appears poised to join them. But color us disappointed to find South Carolina Senator Lindsey Graham in their camp.
Senator Graham courageously ran for office on Social Security reform, only recently considered the third rail of American politics. But now in the hope of drawing a few Democratic votes, he wants to extend the amount of income to which the 12.4% Social Security tax is applied from the current $87,900 all the way up to $200,000. That's a huge tax hike any way you slice it, and it is entirely unnecessary.

True, taking money out of the pay-as-you-go part of the program to put in private accounts would mean we'd arrive earlier at the point where payroll taxes would no longer meet current expenditures (now predicted to be about 2018). But over time those growing accounts would plug the funding gap. And the obvious way to pay benefits in the meantime is to take some of the unacknowledged $11 trillion in long-term Social Security debt--the benefits that politicians have promised--and be honest about it by issuing Treasury bills.

White House spokesman Scott McClellan was absolutely right Thursday when he said that "the financial markets will look very favorably on that approach." Why? Because they know the government already owes the money anyway. The same politicians expressing horror at new "borrowing" don't seem to be urging any benefit cuts that would allow us to borrow less.

The transition to Social Security private accounts means a medium-term increase in government borrowing, but it would mean a long-term reduction in overall government liabilities. And it is certainly preferable to all of the economic pain (and general revenue loss) that the tax hikes necessary to sustain our current system would cause.

Which brings us back to Senator Graham's destructive idea--and the folly of Republicans accepting the notion that people making $87,900 with a mortgage and kids are somehow "affluent" and worthy of sacrificing in order to win the plaudits of a Democrat or two. On the economic merits, the people who would get whacked by this 6.2-percentage-point increase in marginal tax rates are among America's most productive, many of them small business owners (who pay the full 12.4%) creating jobs. Such a tax hike would increase the cost of hiring and decrease the number of "good jobs" every politician says he wants to create.
As for the politics, for every Democratic vote that Mr. Graham's tax increase won over for reform, he would lose one or more Republican votes. If there's an issue that has united Republicans in recent years it is opposition to tax hikes, and the quickest way to be routed in 2006 would be to raise taxes on precisely those voters whose incomes make them lean Republican. Mr. Graham must be spending too much time with his Senate buddy John McCain's media fan club.

We're happy to debate other ways than bonds to finance the "transition costs," including changes in indexing formulas. But only in Washington could the first attempt in years to honestly address the $11 trillion Social Security shortfall be portrayed as a massive and unnecessary increase in the national debt. It is the opposite.

Republicans willing to play along with this charade are only reducing their chances of reform success. A growing economy is the sine qua non for keeping any retirement system solvent, and a tax increase is the absolute last thing we need.


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Social Security reform is needed mainly to close the gap of funding since there will be so many more people retired in the coming years.

Right now increases in payments to ss recipients are based on a wage index and not to inflation. If increases to payments were changed to only inflation adjustments, that alone would fix the system.

Private accounts may be a good idea, but why reform the system if you build in increases that we cannot sustain without major tax increases in the future? and why would Republicans push for tax increase only on primarily Republican supporters?

So why push for reform at all if democrat supporters don't have to put in some flesh too? I mean, after all, 46% percent of working americans no longer pay ANY federal income tax as it now stands.

[PhantomSgt]

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[tony54]

Although SS is a big problem, I think Medicare is an even worst one.
Hospitals are full of seniors on Medicare, and Social Security.
Doctors send them into the hospital some of them 2 or 3 times a year and they know they will get paid promptly.
Some of the procedures are unnecessary, very expensive, and they don't give senior discounts. But it’s job security for some doctors.
An older friend of mine passed away last June; he was 82 years old.
In the past 3 years they talked him into getting both knees replaced,
then a hip replacement, last year they did a quadruple bi-pass on his heart, then he had lung cancer and they were talking about removing a lung but it spread to the liver and he died from it.
I don't know for sure how much he paid into social security while working his whole life, but I'm sure he got it all back in the 20 years of retirement.
But Medicare must have spent at least 1/4 million on his medical.
So on average Social Security may have averaged $1000 a month,
but Medicare may have spent another $2000 a month in his last ten years.
Even if they know ahead of time that the man may only live another year or two, they won't hesitate to do a $100,000 heart surgery.
And this is the real kicker, they will do the same thing for a senior who never worked or paid five cents into the system.

The politicians like it because they keep them alive for one more vote!