Advice On Social Security

Apparently, the political and economic teams in the White House are fighting about whether to do Social Security Reform now, or after the 2012 Election, and whether or not benefit cuts should be involved. Basically, everyone agrees reform has to get done, but there is debate about when and how. From the Hill:

Social Security became “cash negative” last year as it began paying out more in benefits than it received in revenues. Thus, the federal government has begun borrowing in capital markets to pay off its IOUs to the trust fund.

The trust fund itself has a theoretical $2.6 trillion surplus, but that money has been spent by the federal government like general revenues. The payback has arrived at a very difficult time, when Washington is running a $1.6 trillion budget deficit.

Geithner and his lieutenants argue that benefits reform will give the markets confidence that Obama and Congress have the will to address the problem of long-term national debt.

So, what to do? Do it now. Here's why:

• There is little to no chance that Medicare gets done during this term, being that we're about 10 months from the Iowa Caucuses now, and re-election year beckons for a lot of freshmen in the House. I cannot imagine Speaker Boehner doing a deal. So the only alternative to doing Medicare as a "big fix" to the deficit in 2011 and 2012 is to do Social Security.
• No one wants to see the Republican alternative "fix" to Social Security, privatization (maybe not even the GOP). It's unpopular, and a real drag on them with the older voters who put them in in 2010. By bringing out a reform plan, it will force the GOP Leadership, and Presidential contenders, to come out with a plan of their own. Politically, this is poison.
• No believer in Social Security wants to see the program gutted out to nothing. So, do it now, while the Democrats hold the Veto pen, and not risk losing that before we get the chance.
• Since Medicare isn't an option, this is likely to be the biggest thing he can do with the remainder of his term. It'd be pretty impressive to add this to an impressive first term resume, saying he was the President who did a "big fix" on Social Security. He would be standing up to the left-wing crowd that says "don't do anything" on Social Security, and standing up to the right-wing "all government is bad" crowd at once. Major points with independent voters for re-election there. Also, major points with voters in general, for showing the ability to get big, important things done in a re-election cycle.
• Even though insolvency is over 20 years away, it's the right thing to do, policy wise. The program does have long-term problems, and they would put us in a debt busting situation if not fixed. By doing it now, we avoid those problems, and see major benefits.

So then, I'm sure someone will shriek "cutting benefits is political suicide." Someone else will scream, "we can't afford this damn program." Both are very wrong. Fixing Social Security doesn't take as much effort as people think, and could be done to a benefit. Here's how:

• Eliminate, or change, the cap on payroll taxes for Social Security, which currently rests around $107,000. Why do we have this anyway? I'd get rid of the cap all together, and lower the tax rate as a result (still bringing in much more revenue), but even just an upward change would fix a lot. Raising the cap to say, $250,000, or even $1,000,000, would generate billions, if not trillions long term, to pay back the "iou's" in the trust fund. It's simply "upping" the revenue.
• Raise the retirement age, slowly. Most people in their 20's, like me, assume that the retirement age will be higher for us, because we'll live longer. Even raising it gradually, and only a year or two, saves billions.
• Adjust the "Cost Of Living Adjustments," or COLA's. This is what folks on the left are really the most angry about, but it's probably necessary, in the long run. Social Security's COLA is even more generous than the one enjoyed by most government workers. Just "tinkering" with it, to put it in line with their's, would solve a lot of future problems. Again, for me, a no-brainer.

I'd propose it this year. The President would take the "high ground" in the budget deficit debate, and take control of the "adult conversation" on the Hill. I see all positives here. The President should make his move.

What's Social Security's Status?

President Obama came out today and said that Social Security is not a major contributor to the deficit. He said:

You talked about Social Security, Medicare and Medicaid. The truth is Social Security is not the huge contributor to the deficit that the other two entitlements are.

I'm confident we can get Social Security done in the same way that Ronald Reagan and Tip O'Neill were able to get it done, by parties coming together, making some modest adjustments. I think we can avoid slashing benefits, and I think we can make it stable and stronger for not only this generation but for the next generation.

This of course, wasn't good enough to some on the left:

But Adam Green of the Progressive Change Campaign Committee emails a far more pessimistic interpretation:

President Obama said Social Security is not a "huge contributor" to the deficit. In fact, Social Security has a $2.5 trillion surplus, is not even part of the general budget, and therefore does not contribute one penny to the deficit...

Cuts, tweaks, or slashes to Social Security are the exact same thing -- a broken promise to American workers who paid for and earned Social Security benefits.

Apparently, any discussion of Social Security isn't going to work for them. Social Security is in fine shape, and will be for most of this decade. There does come a point at which the increasing ranks of recipients, and rising COLA's, begin to not only pay out more than they take in, but they also diminish that surplus to nothing. Some say, so what? Let it run red ink. Some say, so what, after all, they can pay 80% of current benefits as far out as we can run the math. Some say, slash the program to hell, we shouldn't have it. I think they're all nuts. I also think it's great that the President defended the program like he did, that's not normal. I'm heartened by it.

Let's throw out stupid solutions like Means-Testing. It won't really work. The real solutions lie in tweaks, not broad strokes. Eliminate or raise the "cap" on payroll taxes for the program and curb the COLA's for the start. Social Security is a strong program, and must continue to insure pay-outs to everyone who pays in. It can continue to do that for a long time, if it is handled right.

Congresswoman Sanchez Willing To Tackle Social Security

Will Democrats Allow The President To "Get Things Done?"

Deficit reform? Maybe. Corporate Tax reform? Maybe. There are SOME openings for President Obama in the 112th Congress. Maybe. Maybe appears to be the key word here. He may not have the openings he thinks, even with a GOP House.

You see, the Democrats are basically saying "no" to anything on Social Security, even if it gets them criticized. They appear to be staking out the opposite position of the GOP's "get rid of it" stance, re-writing history in the same way the GOP has, by attributing values to the program that were not there at the start. The program was meant as a supplemental income for the elderly and incapable, with the value that if you pay in, you pay out. Taking a "don't touch" view on COLA alterations and retirement age is a good way to start negotiating, but as a policy statement, it makes any kind of change to the program virtually impossible, as the GOP isn't likely to capitulate on the caps on Payroll Taxes if the Democrats don't give anything else. As I said though, this is a good negotiating point, and it gives them something to work with. All sides should realize that COLA's and payroll taxes weren't at the heart of the ideals behind FDR's Social Security.

Then there's the corporate tax rate. Everyone agrees 40% is too high. The devil is the details. You see, the highest taxed corporations in effect, are ones that Progressives do not like. Tobacco, utilities, and petroleum are some of the sectors taxed over 10% in the end, and Democrats won't be happy about that. Republicans will also not be crazy about giving away loopholes for their pet corporate partners. Suddenly, consensus seems more difficult.

Trouble Ahead, Trouble Behind....

The refrain is familiar. A Democratic President, who spends two years governing with a Democratic Congress, loses control of Congress in the mid-term. He tacks to the middle, and the new conservative Congress goes over board. His own base in Congress reacts angrily, but ultimately the President wins, and they follow.

Is this 1995 all over again? No, it's 2010, but some are wondering if the GOP is heading the same way. Just months ahead of the March showdown over spending levels, the GOP-lead House is reaching far in it's actions. The President is moving towards the middle, reaching out to business and extending tax-cuts. It's premature, but certainly the similarities are there.

At the same time, the President is facing harsh rhetoric from his left. He's receiving letters from his own party's House caucus saying he should tell the GOP to "keep your hands off of our Social Security." Yes, they want him to take the popular program totally off the table at the outset of any budget discussions. The blanket-ness of the statement smacks nearly as tone deaf as the GOP's $2.5 trillion in cuts to discretionary spending (although far more defensible, as a policy statement). With fears stemming from the tax cut deal and the death of the Public Option, the left-wing of the Democratic Party appears to be drawing early battle lines.

So, on one side is an extremist party that is in charge of the House, and is going to go way out to the right. On the other hand, he has a party of his own that is going to stick tight to it's guns, and may not come along towards the middle. No one said being President is easy. Apparently though, triangulating is.