Saving Social Security

One issue on which Barack Obama and John McCain differ is Social Security. McCain would like to replace Social Security as we currently understand it with a very different kind of retirement program that wouldn't offer security to retirees and would have no progressive impact on the income distribution. Because this plan is unpopular, he would like to confuse people about his support for privatization of Social Security and he would also like to secure bipartisan cover for privatizing it. Obama, by contrast, wants to keep Social Security very much as it is, and if deficits projected for the future emerge he's interested in altering the payroll tax cap in order to secure more revenue.

Or as the headline writers put it on the front page of The Washington Post "Candidates Diverge on How to Save Social Security". Because in headlineland, saving a program and destroying a program under pretext of saving it are just two different ways of saving it. Or as Perry Bacon, Jr. writes in the above-headlined story:

Sens. Barack Obama and John McCain are both proposing dramatic changes to Social Security, taking on the financially fragile "third rail of American politics" that Congress and recent presidents have been unable to repair.

This is a great lead except for the fact that Obama is not proposing dramatic changes to Social Security. Well, there's also the fact that the projected deficits for Social Security are smaller and more manageable than those projected for the other entitlement programs (Medicare and Medicaid) and that the non-entitlement portion of the budget is running a huge deficit right now. Under the circumstances, Social Security would seem to be the least financial fragile aspect of the federal budget. And one more thing -- to say "that Congress and recent presidents have been unable to repair" Social Security implies that recent presidents and Congresses have been trying to repair it when, in fact, George W. Bush's Social Security proposals were, like John McCain's, aimed at phasing the program out.

I think I'm afraid to read past the lede of that particular story.

Comments

Attached are a couple of links from Mike the Mad Biologists' blog showing that the reputed imminent demise of Social Security is greatly exaggerated.

http://scienceblogs.com/mikethemadbiologist/2007/11/the_reality_of_social_security.php

http://scienceblogs.com/mikethemadbiologist/2007/04/more_on_social_security_and_th.php

Posted by SLC | July 8, 2008 9:21 AM

Damn straight. There is no crisis in Social Security. None. Even if we never liquidate one dollar of the "trust fund" (which is, yes, mostly a shell game), we will just be able to pay benefits to retirees out of revenues from workers for the rest of time. True, we may have to reduce the planned _growth_ of future benefits, but we will never have to cut benefits from today's levels. Modest tweaking is all that will ever be required to maintain the system.

Social Security is one of the most successful government programs in history, and it will be just fine for the forseeable future.

Posted by Craig | July 8, 2008 9:34 AM

The so called mainstream media is being revealed in this election cycle to be guilt of malpractice.

We the American people need to rise up and demand better.

If the media were anything close to resembling fair in this election, Obama would be leading McCain by at least 20 points in the polling.

As you mention, McCain, like Bush, pretty much wants to destroy Social Security.

The Republicans do not believe in any amount of government, period, except for military, police, and of course, the moral police.

That is one reason why they are so poor at running govt; it's very hard to run something you do not believe in.

McCain married into wealth; he doesn't really care about the average person or understand their issues.

Posted by cm | July 8, 2008 9:36 AM

When is Len Downie bagging it at the Washington Compost?

Posted by Joe Klein's conscience | July 8, 2008 9:38 AM

MATT STOP DISHONORING JOHN MCCAIN'S SERVICE.

How dare you imply that John McCain's gold-digging marriage saved him from ever having to hold a real job after the military and thus learn the importance of social security, don't you know you're insulting all of our troops that way.

Wait until my husband finds out.

Posted by Andrea Mitchell | July 8, 2008 9:43 AM

There's been a running series at angrybear debunking the claims that SS is headed for insolvency.

"Sens. Barack Obama and John McCain are both proposing dramatic changes to Social Security"

This is simply bizarre. I guess the reasoning is that since McCain is proposing dramatic changes to Social Security, it is 'fair and balanced' to claim that Obama also proposes dramatic changes--even though he doesn't.

Posted by Joel | July 8, 2008 10:07 AM

McMaverick's plan to privatize Social Security will go nowhere. Bush couldn't even get it passed in 2005, when he had a re-election "mandate" and a Congress stacked with GOPers.
Given the poor recent stock market performance, corporate failures/downsizing, state budget fiascos, mortgage meltdown - all happening under the GOP's watch - it's unlikely that anyone will allow these doofi to mess with their Social Security.

Posted by CParis | July 8, 2008 10:14 AM

I'm surprised one of our resident ideologues hasn't shown up to demonstrate just how stupid they are by defending this claim that Social Security is in trouble. Oddly, every single one of those morons is also a supporter of the War on the Iraqi people. A few hundred billion here, a few hundred billion there, but so long as you are using it to slaughter brown people it will never add up to real money. But a projected shortfall after more than three decades of surpluses? That's a God damned emergency right this minute.

Posted by Not as stupid as Will Allen | July 8, 2008 10:15 AM

The "shell game" behind social security is a collection of treasury bonds. If treasury bonds are worthless, maybe someone should tell China, Saudi Arabia, Canada, and other institutional purchasers.

Posted by Jeffrey Davis | July 8, 2008 10:32 AM

Jeffrey,

I'm not saying treasury bonds are worthless. I don't think we've ever failed to honor a bond when it has been presented for payment. But who holds the bonds that make up the trust fund? We do. Those bonds are an IOU from our government to itself. If we choose, as a nation, to start "cashing them in," we will have to (a) raise taxes, (b) borrow other money, or (c) print more money. Those are exactly the same options we would have for generating money if there were _no_ trust fund. For that reason I say it's mostly a shell game.

For my part, I haven't bounced a check since college. But I can't pay for my retirement by writing checks to myself either.

I don't think we'll ever cash those trust fund bonds in--or, at most, we'll redeem them at some low and mostly symbolic rate, like a tenth of a percent or less a year.

Posted by Craig | July 8, 2008 10:41 AM

This is an issue on which I changed my opinion over the years and now agree that nothing should be touched at this time. There are a few facts that must be fully understood before even budging on this issue:

1) Projections showing failure are based upon the view that population growth will slow markedly. While birthrates may go down, there is no way business will allow politicians to block immigration if they're short of qualified workers. The U.S. has always been an importer of talent, and you have to believe that we'll no longer do that to accept the premise that Soc Sec is going broke.

2) Projections of the advantages of privatization are also bogus. Proponents love to tout the 9% historic rate of return, but for that to occur in the future, two things have to happen:

2A) Population must grow at the current pace. If that's true, then see #1 (i.e. Soc Sec won't go broke).

2B) Over that time, the average stock P/E ratio jumped. IIRC, it's up 50% in the last 25 years or so. Do we really expect average P/E ratios to continue to climb like that forever?

3) Nobody has told us how we'll pay for the hit from privatization. The only defense is the stock phrase "it will be worse if we don't", but any justification given is based on the bogus assumptions above. (Hint: If your assumptions suck, your math means nothing.)

4) Even the pessimistic projections say we can pay out 75% of benefits from payroll taxes.

Personally, I'm against anything that will destroy Social Security. It has been highly successful.

As to increasing the income stream, I'd vehemently oppose any move to increase Soc Sec income until no surplus exists. Reagan jacked up payroll taxes and proceeded to spend it all. Unless Soc Sec is fully separated from the general fund, anything that increases its surplus is simply a regressive tax.

Posted by LFC | July 8, 2008 10:46 AM

Those folks who insist that Social Security doesn't face a financial crisis should ask Obama why he thinks its necessary to raise payroll taxes. If it aint broke, why fix it?

As for Matt's suggestion that Barry's proposal to eliminate the cap on social security taxes keeps the program "very much as it is", I have to say that Matt doesn't understand Social Security very well. Matt also doesn't understand that Barry has proposed eliminating the cap next year, not in some hypothetical future in which Social Security deficits emerge. More of Matt's famous wonkery. Is there any subject you know something about? Is there any subject you won't blog about despite knowing little or nothing?

Posted by Thomas | July 8, 2008 10:51 AM

Jeffrey said... The "shell game" behind social security is a collection of treasury bonds.

As Craig pointed out, they are a special class of treasury bonds. For one thing, I believe they have a return rate below inflation. That means that they are designed to be money losing instruments. (No wonder they're only available for purchase by our gov't. Nobody else would want them.)

The impact on America's credit for defaulting on these notes or changing their terms would not be the same as if we defaulted on notes held by investors, both domestic and foreign.

And, as Craig pointed out, they have to be paid back with taxes assessed in the future. Where is that tax money going to come from? (Maybe John "War Savings" McCain" will start another war, win it, and put the "savings" towards paying back the Soc Sec trust fund.)

Posted by LFC | July 8, 2008 10:56 AM

Perry Bacon is a horrible, horrible reporter. Think John Solomon, but with even less judgment.

One of the best parts of this hatchet-job of an article is Bacon's claim that McCain is interested in bipartisan solutions and working across the aisle - but all of the "bipartisan" solutions that Bacon lists involve cutting benefits or creating private accounts.

Posted by TedL | July 8, 2008 11:04 AM

Those folks who insist that Social Security doesn't face a financial crisis should ask Obama why he thinks its necessary to raise payroll taxes. If it aint broke, why fix it?

I believe he's trying to use it to alter tax burden. Depending upon how you define it, that means it will either make it more progressive (raising the marginal income tax rate on the highest earners of regular income) or make it flatter (since long-term gains vs. income tax + payroll tax means that the marginal rate on many of the wealthy is advantaged by over 100%).

I'm all for a true flattening taxes (i.e. the sum of income + payroll + l-t capital gains + s-t capital gains + dividends + interest + usage taxes + fees + anything I forgot), but I disagree that a hike in the Soc Sec tax cap is an appropriate way to go about it.

Posted by LFC | July 8, 2008 11:13 AM

LFC, if the revenues raised by an increase in the payroll tax aren't needed for Social Security, it's wrong to raise the tax. The distributional goals that you suggest Obama is pursuing can be addressed through the income tax. In fact, the income tax system does address those, and comprehensively. There's a complicated system of credits and deductions meant, in part, to truly treat like cases alike. If that's Barry's goal, he's pursuing it in a really stupid way. Maybe that's why Matt likes him so much.

Posted by Thomas | July 8, 2008 11:36 AM

if the revenues raised by an increase in the payroll tax aren't needed for Social Security, it's wrong to raise the tax.

What you call, "raising the tax," I would call, "eliminting a special tax break for people with high incomes." Making the payroll tax more progressive is worth doing for its own sake. And it's not as if the government can't use the money . . .

Posted by rea | July 8, 2008 11:44 AM

And, as Craig pointed out, they have to be paid back with taxes assessed in the future. Where is that tax money going to come from?

Um, the economy?

Posted by Jasper | July 8, 2008 12:09 PM

And right on cue resident moron and supporter of welfare for warfare Thomas pipes in demonstrating his encyclopedic idiocy - it's just that deep and all consuming.

Here's a question for Thomas, "which program is deeper in debt - Social Security or the Iraq occupation?"

Posted by Not As Stupid As Thomas | July 8, 2008 12:09 PM

LFC, if the revenues raised by an increase in the payroll tax aren't needed for Social Security, it's wrong to raise the tax.

I agree wholeheartedly, as my last paragraph says. I want to see a two-tier but flatter tax structure. First tier is $x that is untaxed for everybody, since you can't get blood from a stone. Second tier is taxes at y%, no matter if it's income, capital gains, interest, or whatever.

I'm not sure, but I think that's what Obama is doing with a set of proposed adjustments. I wish he'd just belly up to the bar and make the flattening blatant, though there's a good chance that's politically impossible. [Sigh.]

Posted by LFC | July 8, 2008 12:09 PM

The long-term viability of Social Security is a problem but just a speck on the moon compared to Medicare. That is why there is so much political debate about Social Security and virtually none about Medicare - there are some possible solutions for Social Security but no easy answers to the cost of the healthcare program.
The Social Security debate is a diversion that gives candidates something to talk about that may benefit the country's most dedicated voters. Any real answers to Medicare are not likely to win votes.

Posted by tucker | July 8, 2008 12:45 PM

And I thought "Heads In the Sand" was about foreign policy!

Posted by Gil | July 8, 2008 2:10 PM

Missing in this discussion about Social Security is the focus on young people. Future generations are the ones who are going to have to bear the burden and pay the price. A recent economic survey by the Center for American Progress found that 74 percent of Millenials support personal accounts for the matter of Social Security. Just read Students for Saving Social Security's press release today: www.secureourfuture.org

Posted by Neha | July 8, 2008 2:44 PM

I am fully in support of personal retirement accounts As a recent college graduate from Penn State, I believe this country is in a rut, and the only way to fix the ever-growing problem of Social Security and other entitlement programs is to begin cutting back the constant FICA tax etc.. and beginning to let individuals control how they retire and what they get from it, that is why I am a member of Student for Saving Social Security. This organization strives to gain support for the youth of America and raise a constant awareness for Social Security reform.

Posted by Devin Madden | July 8, 2008 2:51 PM

We already have personal accounts. We also have a huge propaganda machine called the RNC lying to everyone about Social Security so they can distract from their inability to collect enough money to cover their warmongering.

Our misinformed friends above do themselves no favors by spouting the RNC line. It's not like any informed person will believe that crap.

Posted by Not As Stupid As Thomas | July 8, 2008 3:07 PM

Devin/Neha, the "ever-growing problem" is that you're never going to convince working people (who've seen their defined-benefit pensions eroded and rolled over into flaky 401(k) accounts over the past 20 years by private industry for the benefit of profits/perceived shareholder value) to give up a government-guaranteed benefit for yet another free-market devil-take-the-hindmost privatization boondoggle. Who is more likely to still be standing in 20 years? Some Bear Stearns-type investment bank or the US government? The only thing that keeps your little organization going is the financial industry's collective wet dream of the commissions it could rake off if Social Security got into their hands before it pissed it all away. You're not arguing in good faith, and people should know that.

Posted by Vivisfugue | July 8, 2008 3:43 PM

What about Thrift Savings Accounts?
Currently Members of Congress and people that work for the government have access to a personal retirement account - it's called a Thrift Savings Account. It seems that Congress can take care of themselves - but has left out the rest of the rest of us. As it stands now, we have no legal right to our Social Security money - there is absolutely no "guaranteed benefit," just an IOU from the Government, that Congress can decide not to pay at any time. Just check out the Supreme Court decision Flemming vs. Nestor, we have no legal rights to our Social Security money. With personal retirement accounts, we could have an account with our name on it - that we own, that can grow and will be there when we retire. I will be 65 in 2050 - and I would rather have an account with my name on it than an IOU from the government.

Posted by Jo | July 8, 2008 3:52 PM

As a college student I am obviously concerned about my future. And Social Security is a mess right now. I am in favor of private accounts because I have control of my money, I think that this is the best way to ensure benfits for people when they retire.

Posted by E.Watson | July 8, 2008 3:53 PM

The income tax system is borken. Last year I made just over $1M. I paid $13k in taxes. Stupid.

Posted by justinb | July 8, 2008 3:56 PM

What about Thrift Savings Accounts?
Currently Members of Congress and people that work for the government have access to a personal retirement account - it's called a Thrift Savings Account. It seems that Congress can take care of themselves - but has left out the rest of the rest of us. As it stands now, we have no legal right to our Social Security money - there is absolutely no "guaranteed benefit," just an IOU from the Government, that Congress can decide not to pay at any time. Just check out the Supreme Court decision Flemming vs. Nestor, we have no legal rights to our Social Security money. With personal retirement accounts, we could have an account with our name on it - that we own, that can grow and will be there when we retire. I will be 65 in 2050 - and I would rather have an account with my name on it than an IOU from the government.

Posted by Jo | July 8, 2008 3:58 PM

>Those folks who insist that Social Security doesn't face a financial crisis should ask ...

Yawn. Those folks who insist that it does never include the trillions thrown away on militarism.

Ross Perot, izzat you?

Posted by bartkid | July 8, 2008 4:05 PM

>Those folks who insist that Social Security doesn't face a financial crisis should ask ...

Yawn. Those folks who insist that it does never include the trillions thrown away on militarism.

Ross Perot, izzat you?

Posted by bartkid | July 8, 2008 4:10 PM

I'm a student and I am in support of personal accounts - that's why I am a members of Students for Saving Social Security. Students and younger generation must engage in this debate and voice their opinions on this issue.

I urge you to check out the website: www.secureourfuture.org

Posted by McKay | July 8, 2008 4:13 PM

>Those folks who insist that Social Security doesn't face a financial crisis should ask ...

Yawn. Those folks who insist that it does never include the trillions thrown away on militarism.

Ross Perot, izzat you?

Posted by bartkid | July 8, 2008 4:18 PM

Gawd, these young Republicans are as dumb as barnacles.

Posted by Jasper | July 8, 2008 6:56 PM