IE 11 is not supported. For an optimal experience visit our site on another browser.

Social Security too hot to touch? Not in 2008

Though many politicians have fallen victim to the jinx of Social Security, the two presumptive presidential nominees do not appear to be among them.
/ Source: The New York Times

Ignoring the warnings that Social Security can derail political careers, Senator John McCain has infuriated his party’s right wing by saying that “everything has to be on the table” in discussions about keeping Social Security solvent.

Mr. McCain, the presumed Republican presidential nominee, does indeed seem to have put everything on the table. In the space of one week, he opened the door to an increase in Social Security taxes, denied he would raise payroll taxes and then, through an ally, called a tax increase a “dumb idea.” He has also sowed confusion about whether he favors privatizing Social Security, or continuing with the current system.

Senator Barack Obama, Mr. McCain’s likely Democratic rival, has been attacked for offering his own, far more specific plan that would raise payroll taxes, though only for the rich. But that criticism has not come from his party and has not been as intense as the denunciations of Mr. McCain.

Party elders and analysts who have seen many a politician fall victim to the jinx of Social Security, which was signed into law 73 years ago Thursday, say they are not surprised.

“All you have to do is open your mouth and you’re dead meat,” said Bill Frenzel, a former Republican congressman from Minnesota who is now a Social Security analyst at the Brookings Institution. “If you say you might have to raise payroll taxes, the no-tax crowd jumps all over you. Say you might have to decrease benefits, and the AARP and the Democrats will kill you.”

Both candidates agree that adjustments to the Social Security formula are necessary because the trust fund, though in surplus now, will begin showing a deficit around 2018, according to actuarial forecasts. Some project that the fund will be exhausted shortly after 2040; others, using less pessimistic calculations of economic and population growth, say that would occur decades later.

Still other economists say such warnings are fear-mongering, and argue that economic growth and immigration, combined with some tinkering, could keep the system solvent indefinitely.

The two presumptive nominees do not appear to be among them. But unlike Mr. Obama, whose proposal unambiguously calls for higher taxes on wealthy Americans but also hands his adversary fodder for the fall campaign, Mr. McCain, in refusing to be pinned down, has left many experts wondering what approach he would favor. Somewhat unexpectedly, Social Security surged into the presidential campaigns on July 27, when, on ABC’s “This Week,” Mr. McCain said “there is nothing I would take off the table” in efforts to keep Social Security viable. When asked if that included a tax increase, he twice repeated his “nothing’s off the table” phrase.

That statement was apparently meant to give Mr. McCain maximum flexibility in any negotiations with Congress over the future of Social Security that are sure to be part of the next administration’s agenda, regardless of who wins the election. “John McCain believes we’re not going to be able to start a negotiation with ultimatums,” said Taylor Griffin, a spokesman for Mr. McCain. “What he’s saying is, Let’s keep this out of a polarized political debate.”

But it immediately brought a sharp rejoinder from the Club for Growth, an antitax group, which forced Mr. McCain into verbal acrobatics in which he tried to maintain his personal opposition to a tax increase.

He also confounded experts by endorsing the idea of individual private accounts, but without clarifying whether he sees them as a tool to augment the existing system or to replace it with some form of privatization similar to what President Bush proposed in 2005.

The distinction is vital. In their mildest form, so-called “add-on” accounts would permit, but not oblige, employees to make contributions above the current payroll tax rate. But a “carve out” approach would reroute some part of current contributions to the system and, in some versions, would be mandatory.

Democrats and their allies oppose the carve-out concept, which they argue could eventually open the door to diverting most of the money going into Social Security and would result in decreased benefits. But they have been less hostile to add-on plans, some forms of which they see as benign.

Though both campaigns are reluctant to name other steps, beyond a payroll tax increase, that might be required to keep Social Security solvent, several proposals are already on the table, including one written jointly by current and former advisers to both candidates.

Raising the retirement age further, reducing benefits across the board, pegging increases in benefits to inflation rather than wage hikes, and allowing retirement at an earlier age in return for cuts in benefits were all floated in a December 2005 study, “Nonpartisan Social Security Reform Plan.” Its authors included Jeffrey Liebman, now Mr. Obama’s chief Social Security adviser, and Maya MacGuineas, who advised Mr. McCain on the subject in 2000.

Ms. MacGuineas is now an analyst at the New America Foundation, a bipartisan Washington research group. Mr. Griffin of the McCain campaign said the views in the study were “her own” and that “she is not currently an adviser to the campaign.” The Obama campaign, likewise, said the views in the study were Mr. Liebman’s, and not the candidate’s.

Mr. Obama’s proposal would increase the payroll tax in a way that, to hear his critics tell it, could transform Social Security from a purely social insurance program into one that also helps redistribute income from the rich to the poor. But while his plan has taken heat from the McCain camp, it has raised fewer hackles within Democratic circles.

To begin to attack the problem now, Mr. Obama would subject all wages above $250,000 a year to the payroll tax. That concept has been nicknamed the “doughnut hole” because it would exempt wages between $102,000 a year, the current ceiling for contributions, and $250,000.

“What Barack Obama is doing is different from what people running for president traditionally have done,” Jason Furman, Mr. Obama’s chief economic adviser, said in an interview. “He’s putting an option on the table, not just saying he wants to work with Congress, but also saying what he wants to work on.”

While more specific than Mr. McCain’s plan, the Obama proposal raises questions. The tax rate Mr. Obama would apply to wages over $250,000 has not been established, but it would be lower than the combined 12.4 percent that employees and employers now jointly pay. “We’ve studied a range of plans with combined employer and employee rates between 2 and 4 percent,” Mr. Furman said.

By itself, the Obama proposal will not guarantee the solvency of Social Security. Andrew Biggs, a Social Security expert at the conservative American Enterprise Institute, calculates that the plan would reduce the gap by 15 percent to 43 percent, depending on the level of the surtax, which he complains “is being fuzzed up to prevent people like me from running the numbers.”

It is also not clear whether those paying the additional payroll tax would receive more benefits, as the system now mandates. Mr. Furman said “it is factually inaccurate to say that a decision has been made to de-link taxes from benefits,” because “that is something you’d want to work out with Congress.”

But Pat Toomey, a former Republican congressman who is president of the Club for Growth, was skeptical, saying that there is no point to having the doughnut hole “unless you’re going to redistribute wealth.”

Mr. McCain and his surrogates have also sharply criticized the Obama proposal, portraying it as a new soak-the-rich tax. Lawrence B. Lindsey, who as Mr. Bush’s chief economic adviser was one of the architects of the 2001 tax cuts, has even argued that Mr. Obama’s plan would turn Social Security into “just another welfare program.”

But when Mr. McCain was asked in February 2005 in an interview on NBC’s “Meet the Press” if he could support the doughnut hole concept, he offered a cautious endorsement.

“As part of a compromise, I could,” he said, so long as it included “other sacrifices, because we all know that it doesn’t add up until we make some very serious and fundamental changes.”

And Mr. McCain’s former adviser offers guarded praise. “The doughnut hole is not a fix in itself,” Ms. MacGuineas said, “but it can be one piece, depending on what the other pieces are. I happen personally to think you have to have a balanced solution, with some revenue increases and some spending cuts.”

This article, , first appeared in The New York Times.