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We have a winner

We have a winner in The Wall Street Journal editorial page competition -- thanks to all the many readers who've sent me something. "Public Trust Busting" appeared in the Journal on my seventeenth birthday, May 18, 1998. It's mostly dedicated to praising the late Senator Daniel Patrick Moynihan's support for partial privatization. But, they also write: "Now, let us acknowledge that 'privatizing' Social Security is not what Mr. Moynihan desires. His political goal is to reform Social Security just enough to be able to save its universal guarantee." A misguided strategy, but not, I think, a malign one. More Washington Post editorial page than WSJ edit page. Certainly the Journal-ists do not approve: "No doubt many conservatives will want to go much further than the New Yorker, us among them."

In other words, they wanted then what they want now -- the elimination of Social Security as we know it.

Thanks to reader M.A. for the tip. I'd send you a t-shirt, but I don't think I have that authority.

FYI heres long-time Social

FYI, here's long-time Social Security commissioner Robert Ball's ideas about the scope of the Social Security problem (small) and some ways to achieve solvency courtesy of the good people at The Century Foundation. Obviously, I'm enamored of my own ideas on this score, but he's the country's leading authority on Social Security and I'm, well, a guest-blogger . . . so you might want to listen to him. At any rate, these in-house disagreements between friends of social insurance are small potatoes compared to the epic struggle over whether or not we should phase it out.

As I enter my

As I enter my final 24 hours with this soapbox at my disposal, I'd like to shift gears a bit from unspinning the endless web of Social Security lies to offering some positive thoughts. To make a point Josh has offered a couple of times but not, I think, adequately spelled-out the Democratic Party seems to me to suffer from a surplus of tactical thinking. The elected officials and the strategists have fallen a bit dangerously out-of-touch with the content of liberalism. This isn't to say that Democrats need to adhere more closely to some kind of party orthodoxy. Outside-the-box thinking is always welcome, and I think there are some issues where the orthodoxy is dead wrong. It's to say that departures from the orthodoxy ought to be grounded in the merits of the issue and not just undertaken as heterodoxy for its own sake or as some short-term tactical ploy.

Generally speaking, too many people in this town seem to have things basically backwards. The idea should be for policy people to devise good ideas. Then political people think of ways to sell the ideas. If there's no way to sell a particular good idea, then you put it on the back-burner and look at something else. What you don't do is have the political people figure out what the public wants to hear and then go have the politicians adopt whatever that happens to be as the talking point du jour. That leads to the sorry spectacle I've seen on C-SPAN in recent weeks where you have Democratic congressman up there pretending that somehow a Democratic administration could magically make gasoline cheaper or force China to solve our economic problems for us.

So on Social Security: What is to be done? Ideally, nothing. The notion that we need to achieve perpetual solvency in 2005 for a program that's in balance into the 2040s seems to be based on a version of the old adage that "a stitch in time saves nine." And so it does. But you don't open up your closet and start stitching up your least threadbare sweater. The future is uncertain. We can't know right now if this Social Security deficit will even exist, much less how big it will be. The first thing to do is to work on the on-budget portion of the federal government, primarily through tax increases but also through budget reforms aimed at curbing wasteful spending. The good here should be, if not a balanced budget, then at least a declining debt-to-GDP ratio. The next-most-urgent economic policy problem is health care. Only then would tackling major changes to Social Security even be worth thinking about. In the interim, immigration reform, efforts to curb the incidence of disability, efforts to combat age discrimination, and achieving full employment as we had in the late 1990s are all ideas worth supporting on their own merits. And if achieved, they'll make Social Security's finances much better as a kind of bonus.

If for some reason it's politically necessary to do at least something (and I'm skeptical of anyone who thinks it's politically necessary to propose tax increases or benefit cuts) to narrow the Social Security gap the first best thing to do is to universalize the program by expanding coverage to all new state and local government employees. Next best, raise the FICA cap so that it covers 90 percent of payroll and change the indexing formula to ensure that it covers 90 percent of payroll forever. After that, rather than raising the retirement age, lower the benefits available to "early" retirees to encourage a larger proportion of the population to work up to the "normal" age -- right now most people retire "early" which, as the terminology indicates, isn't how it's supposed to work. You could appoint a Federal Reserve-style board to oversee the latter two ideas and tweak them periodically as necessary.

That's the Yglesias Plan for Social Security. Later on, the fraught question of add-on accounts.

De laudace encore de

De l'audace, encore de l'audace, toujours de l'audace!

I was just on the radio talking Social Security with John Fund of The Wall Street Journal editorial page and opened with the elementary point that conservatives have never liked Social Security. They opposed its creation in the 1930s, campaigned for its abolition in 1964, and after the 1983 deal launched a "Leninist Strategy" (their words, not mine) to destroy it, the fruits of which we're seeing today. Understanding this point is absolutely essential to understanding what's happening in Washington, DC this year. There's a debate going on that has nothing to do with Social Security's finances and everything to do with Social Security -- should it be preserved or should it be abolished and replaced with something else?

Fund replied that no, no, no, "I like the concept of Social Security" he just wants to improve and "modernize" it. Then during the next back-and-forth he called it a "Ponzi scheme." Doesn't sound like the sort of thing a person who likes the idea of Social Security would say, does it? Of course not. Sadly, the Journal isn't available on Lexis-Nexis so I can't go to the archives and seek definitive proof that its editorial page does not, in fact, like the idea of Social Security one bit, but if any readers have access to documentation of the point and want to write in with relevant excerpts I'd be interested in reading them.

Social Security how art

Social Security, how art thou an insurance program? Let me count the ways.

My good friend Julian Sanchez, blogger and Reason magazine Assistant Editor doubts that it is in a column for his publication's website: "Neither is the notion of Social Security as 'insurance' terribly coherent, if it ever was. Even when Social Security was first instituted, over half of Americans who reached the age of 21 would survive past age 65. As of 1990 the percentages were over 72 percent for men and 83 percent for women. Aging is not a 'risk' to 'insure' against; it's a normal part of life to plan for."

First and most obviously, Social Security provides insurance against disability. Through the survivor's benefits it also provides a kind of life insurance. Third, through the fact that you keep drawing benefits until you die rather than until some lump sum has been exhausted, it provides a kind of longevity insurance. Living until over the age of 65 is a very common and quite predictable feature of contemporary life, but none of us know exactly how long we're going to live. Someone who dies at 78 and someone who dies at 100 would need nest eggs of very different sizes to live comfortably in retirement. One's ability to keep working during the earlier portions of old age is also not-exactly-predictable. In my line of work it's a reasonable bet that I'll be able to keep on writing away for the vast majority of my lifetime, but many careers aren't like that. The guarantee of benefits starting in your mid-sixties serves as a kind of second-tier of disability insurance against the possibility that the vicissitudes of life will leave you unable to ply your trade into your late sixties and seventies even though you might be healthy enough to live.

As compared to private accounts, Social Security also provides insurance against poor market performance. Small investors are usually best off parking their money in broad indexes rather than trying to outwit the markets. This is a good strategy for the long haul, but it leaves you exposed to risks that are entirely beyond your control. Over the long term, the market goes up pretty reliably, but at any given time your investments may be in bad shape. Guaranteed benefits give you a cushion in case you wind up retiring in the midst of a downturn and need to be able to ride it out for a little while.

Last but not least, there's a mild redistributive element. What Bush wants to do is basically disaggregate all of this. The insurance elements will be eliminated or else (through forced annuitization) contracted-out to the private sector which tends to be less efficient at providing insurance against these sorts of risks. Then on the side there will be this welfare program which, as I've been saying, folks on the right say isn't part of a medium-term plot to phase out even the redistribution, but their actual behavior ("revealed preference" to put it in libertarian-speak) suggests that they're not serious about this. Both the redistributive elements and the insurance elements are important and worth fighting for on their own terms. The liberal view is that linking them together has been a successful policy over a period of decades and that whatever changes may or may not be made to the program should preserve this linkage.

National Review editor Rich

National Review editor Rich Lowry accuses Social Security's defenders of "dishonesty" on grounds so spurious I can't quite tell what they're supposed to be. Certainly he doesn't point to any statements that he alleged are inaccurate. My favored approach to calling people liars is to quote what they've said or written and then explain why it isn't true.

For example, one running thread of Lowry's argument is that Bush's plan is all about cutting the benefits of someone like Rick Hilton, Paris Hilton's super-rich father. In fact, benefits would be cut for anybody earning over $20,000 a year. Average wage earning making around $36,500 would take a very substantial hit. As it happens, that's approximately what I make, and while I'm pretty comfortable on that salary, I'm by no means rich. I'm also 23, share a house with a roommate, and don't have any kids to support. People raising families on salaries in the $30,000-$60,000 range are hardly living high on the hog or setting up trust funds for their kids.

But the dishonesty runs much deeper than that. Social Security taxes are capped at $90,000 of payroll income, so people like Rick Hilton who make lots and lots of money already pay no more in taxes and receive no more in benefits than do folks who probably count as rich in some sense in some parts of the country and who are still living definitively middle class lifestyles in your high cost of living regions. The Hiltons of the world are basically irrelevant to this debate.

How progressive is progressive

How progressive is progressive indexing? Not very, according to a new paper (PDF) from the Center for Economic Policy Research's Dean Baker. Pundits would do well to familiarize themselves with these numbers before proclaiming Bush the second coming of Robin Hood.

Richard Cohen works up

Richard Cohen works up some excellent righteous indignation over the Republican Party's irrational aversion to taxes, but he seems to have a bad case of Washington Post editorial page disease. "George Bush is doing something interesting with Social Security," he writes, "I kind of like the idea of personal investment accounts if funding them does not weaken the overall program or add to the nation's incredible debt."

That's a bit like saying I like the idea of invading Iraq and toppling Saddam Hussein if nobody gets killed and it doesn't cost any money. How, exactly, is diverting one third of Social Security's revenues into another program supposed to be done without weakening the program? Well, obviously, it can't. The idea that "a deal can be made on Social Security" where Bush agrees to raise the FICA cap and Democrats "permit some sort of move toward private accounts" is pure fantasy. The issue on the table here is whether or not we should start phasing Social Security out and replacing it with a 401 (k)-type system. The precise details of the payroll tax aren't relevant. There are lots of ways to broaden asset ownership without undermining Social Security. All you need to do is make sure that the money involved comes from somewhere -- anywhere -- other than Social Security's revenue stream. If this were really the issue, a deal would have been made yesterday. But you can't split the difference between phasing Social Security out and not phasing it out.

A universal social insurance program divided against itself cannot stand. E.J. Dionne gets it.

You may recall that

You may recall that some time ago television networks were refusing to air some advertisements for a gay-friendly church on what looked to many of us like pretty spurious grounds. Turns out whatever policy banned the United Church of Christ from advertising doesn't apply to Focus on the Family, an outfit you may recall as the main organizers of "Justice Sunday," among other things.

Both Ed Kilgore and

Both Ed Kilgore and my American Prospect colleague Sam Rosenfeld wonder if Social Security phase-out isn't going to somehow warp into a proposal for the conservative version of "tax reform" (for how this differs from actual tax reform, see Jon Chait's excellent article on the subject from some time ago), i.e. exempting all income derived from wealth and investments from taxation.

To be frank, I have a hard time seeing how the logistics of that would work, both thanks to the details of the budget process and because the President has appointed a stacked commission to offer tax reform proposals and presumably won't move on the issue until John Breaux's done selling the Democratic Party down the river.

Nevertheless, this is something to keep your eye on. One way or another, this issue's going to hit us before Bush is out of office and Democrats need to be prepared. Unlike on Social Security, where the status quo is basically fine, it won't be viable for Democrats to oppose even a terrible tax reform proposal if that opposition becomes a defense of the actually existing tax code which isn't fine at all. Policywise, an unsatisfactory status quo is obviously better than a change for the worse, but politically I don't think it will be viable. The smart thing to do would be for Democrats to take advantage of their out-of-power status to get ahead of the curve by offering-up some pie-in-the-sky tax reform ideas that comport with progressive principles.

John Podesta and his team at the Center for American Progress offered some smart ideas on this front back in March and liberals everywhere would do well to listen. You can read the short version here or get the details here.