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Wednesday, November 25, 2009

In which I disagree with Kevin Drum and Matt Yglesias in one post

Drum wrote

I’m entirely in favor of a Social Security commission, similar to the 1983 commission, tasked with producing a conventional basket of small revenue increases and small benefit cuts that would balance Social Security’s book in the long term. This is, admittedly, a relatively small thing, since Social Security’s fiscal condition has improved over the past few years and is now projected to eventually go out of balance by only about 1.5% of GDP. But aside from the virtue of even small acts of fiscal rectitude, it would also have the huge virtue of taking Social Security off the table as a political issue.

Huh ? Obviously it will never be off the table as a political issue. Too many prominent opinion leaders hate it and the general public loves it too much for it ever to be off the table.

Yglesias has a probably less plausible story about what would happen.

Kevin’s plan is going to play out along the lines of a familiar script. First, Barack Obama proposes something sensible and centrist like a balanced package of benefit cuts and tax hikes. Then this becomes defined as the extreme left pole of the debate. Then because Max Baucus and Kent Conrad are moderates, it needs to be balanced further in the direction of spending cuts. Then the administration embraces that proposal and it becomes defined as the extreme left pole of the debate. Then because Evan Bayh and Blanche Lincoln are moderates, it needs to be balanced even further in the direction of spending cuts.

Why would that happen ? Remember social security is the third rail. Cutting social security pensions is not like cutting medicaid or subsidies for the currently uninsured. It is like cutting medicare*. I haven't noticed an irresistable drift towards doing more and more of that. If some legislator demands benefit cuts in addition to tax increases, that legislator should probably start looking for another line of work.

Consider the health care debate. Republicans are not focusing on the house's surtax or thge Senate's surtax. They are denouncing Medicare cuts. They are in it to win it and they know that the way to win is to tell senior citizens that their social welfare programs will be cut.

Now consider the partial personalization debate of 2005. Cuts to social security benefits weren't inevitable then. They didn't happen when Republicans had the President and 55 senators. Why would they happen when there are 40 Republican senators. Bush pushed hard and it went nowhere.

To be blunt, I think what is going on here is that the left blogosphere is very proud of their great victory in 2005. It was a great victory and they had an important role. However, it was not a great victory against tough odds. More like the Colts beat the Lions.

I think it would be useful if that commission proposed 0 benefit cuts and the FICA doughnut plan so that the payroll tax kicks in again individual labor income over $250,000/yr.

This would have some advantages. The proposal to *eliminate* the FICA ceiling had majority support back in 2005. The doughnut plan would, I would guess, have even more support.

Obama said he would do this during the campaign.

It would be a tax increase on rich* people and help balance the budget. It would show that there is no need to cut benefits to save social security. you (M.Y. have argued again and again that such a tax increase would have good incentive effects).

The Republicans would go apesh*t and show how totally out of touch they are.
I'd say one of the events that guaranteed Obama's election was the time when McCain said that to be rich you had to have family income over $5 million per year. Republicans talking about middle class people with individual labor income over 250,000/year are not going to appeal to real live middle class people.

On the other hand ...

Well, what exactly is on the other hand ?

*typos corrected thatnks to comments.

update: I read a post somewhere in which it was asserted that the doughnut plan consists of applying the full payroll tax to individual payroll income over 250,000. This is definitely not a proposal ever made by the Obama campaign. The above the hole tax rate would definitely be lower. I'm not 100% sure that they ever described one, but IIRC the maximum discussed was 2% each on employer and employee. This is a much less radical proposal than one might guess and would creates smaller incentives to disguise payroll income as capital income, capital gains or corporate income.


Bruce Webb said...

First the picky stuff.
"Cutting social security pensions is not like cutting medicaid or subsidies for the currently uninsured. It is like cutting medicaid"
In context the second 'medicaid' should be 'medicare'
"It would be a tax increase on rick people"
At first read I saw 'sick' rather than 'rich'.

On the substance. Obama's donut hole concept and the raise for earners over $250,000 was terrible medium and long-term policy and politics. Short version it erodes the political insulation of Social Security by moving it from an insurance model to an welfare model and also undercuts support for allowing Bush tax cuts to expire by seeming to be taking two bites at the apple.

I want to get effective rates on the wealthy back up to Clinton era or better Reagan era levels. Screwing around with the cap just allows them to say they are contributing more already and this just proves that FDR's original model was fatally flawed all along. Neither serves the long term progressive agenda.

Longer version Soc Sec XVII: Cap Increases & Donut Holes AB Series Jun 6, 2008. One reason I was cool to Obama before the election.

Rdan said...

Bruce left a comment over at Kevin's.

Robert said...

Dear Bruce. Thanks for pointing out the typos. I just had a manusript rejected and can't respond civilly. It is best for me to stop typing now. I will just say that on substance I absolutely totally utterly disagree with you.

I have saved my angry reply. I can e-mail it if you want but it is long and unpleasant in tone.