TaxVox The Real Problem with Social Security
Howard Gleckman
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Candidates for President are talking about Social Security. Despite the knee-jerk reaction of the Democratic Left, this is a very good thing.

For just a moment, let's ignore the details of what the candidates are saying and revel in the idea that a subject long thought to be untouchable is, in fact, back in play. This is especially important in the wake of the nation's experience with Social Security policy in 2005 and 2006. That was when, you will remember, President Bush first took the important step of generating a major debate over the issue, but then undid all that good by insisting on his improbable plan for private accounts.

Now, Democrats Barack Obama and John Edwards are talking about raising the payroll tax for some upper-income workers as a way to restore long-term financial stability to the retirement system. Republican Fred Thompson has laid out an even more detailed plan that would allow workers to create voluntary personal accounts that would be matched, in part, by the government. Thompson would also slow the growth in the overall program by indexing benefits to prices rather than wages.

Now, each of these ideas has its problems. For instance, Obama and Edwards would impose payroll taxes on wages up to the existing cap (currently $97,500), then earnings would be tax-free up to around $200,000 or $250,000 when wages would again be taxed. Why a lawyer making $250,000 deserves a payroll tax break while his secretary making $40,000 does not eludes me. Still, they have put the issue on the table and bravo for that.

What is especially interesting is the reaction of the Democratic Left. The New York Times' Paul Krugman, for instance, calls Obama a "sucker" for even talking about Social Security. For him, "Social Security isn't a big problem that demands a solution, it's a small problem."

Well, Paul, actually it is a big problem. It is not as big as, say, Medicare. But, last time I looked, a program that will spend 1.2% of GDP more than collects over the indefinite future has got a problem.

The logic of Krugman et. al. fails me. They seem to be saying that because there are bigger challenges out there, we should not be confronting this one. I think what they really mean is if George Bush identified Social Security as an issue, Democrats must insist it is not. Kind of like WMD.

Years ago, Brookings Institution scholar Belle Sawhill warned liberals about the long-term entitlement problem. Left unchecked, she reminded them, entitlements would absorb funds for programs that were important to Democrats, such as education and children's health. In recent months, we have learned how hard it is for a Democratic Congress to boost spending for these programs, even while the Social Security surplus masks the real deficit. Over the next decade, as the retirement program's annual benefits inexorably exceed its revenues, Democrats will learn just how right Sawhill was, and how wrong Krugman is.

Primary topic Individual Taxes
Research Area Individual Taxes