Centerfield

I understood the payroll tax 'line in the sand' as the rate (12.4%) not increasing but the $90K cap was on the table.

BTW, private accounts do not resolve the Social Security problems, according to the administration.

I am getting bored with their inability to build a bipartisan coalition on an issue that would be easy to do so, or even to bring along moderates within their own party. Even Democrats who spoke out for privatization over the years are united against the President's plan. Do they really think that if Congress does nothing that it will hurt them in the mid-year elections? I would like to see how they came to that conclusion.

EG, you can do better than that. Money quote within context, please. Who's going to believe that what the admin said in this briefing can be summed up as simply as you suggest? Not me.

Everything I've read suggests that the Bush admin (and many others) think integrating investment into SS can be PART of the solution, over the long-term. As near as I can tell, they've never suggested it could be the entire solution, or that the efficacy of such reform would be immediately apparent. Integrating investment absolutely will cause a substantial funding problem during what can be expected to be a lengthy transition. To my knowledge, the admin has not denied this either. So I wonder, what's left to whine about?

Looking at this purely from the perspective of a partisan pissing match, the dems would be foolish to make anything but raspberry sounds. They WANT the republican to grab that third rail. They have seen the latest polls http://www.pollingreport.com/social.htm

No mater what is purposed you are going to tick off a major voting block.

Is the $90k cap or the increase of the 12.4% payroll tax 'off the table'?

Mathew,

The logic is: if Bush gets the privatization passed into law, it will take a number of Republicans in 2006. If the Democrats work with Bush and create a bill that passes, a number of Republican and Democrats (example: Lieberman) will lose in 2006. So let the Republicans play hangman seems to be the response today.

There is a problem and the Democrats know it. But part of the solution that sits 'on the table' is cutting benefits or raising taxes or both. And no one wants to touch them.

Agreed, BK.
How's this from CNN?

"What about Bush's proposed individual accounts? On their own, they do nothing to solve Social Security's funding problems. Even the White House admits as much.

Personal retirement accounts, "for all their virtues, are insufficient to that task," Wehner wrote in his memo. There's also an inconvenient fact that Bush rarely mentions: if workers start investing payroll taxes in individual accounts, the government will need another source to cover benefits for retirees --as much as $2 trillion by some estimates. The options are grim: borrowing heavily, cutting benefits or both."

Ah, the joys of partisan pissing matches, long on rhetoric, short on facts. Until Congress lays a proposal with real numbers on the table (if they ever do), one scored by the CBO, it's all finger-pointing and bullshit. And regardless of what the President desires or CNN says, only Congress can do that.

To "solve" the SS funding problem through forced pay-go payroll tax increases would eventually require payroll tax increases of 50% or more, taking the SS rate up close to 20% of payrolls.

To "solve" the SS funding problem through benefit cuts would require reducing benefits by 30%--or more. Part of that could be accomplished by scaling back future benefit increases to cost-of-living rather than wage growth. But only part.
It does seem silly to be promising much higher benefits in the future, higher than today's after adjusting for inflation, when we can't pay for them. That's Congress. Hand out the goodies for the votes, let someone else pick up the tab.

"Solving" the SS funding problem through increasing the "trust funds" with new "surplus" taxes before the funding is actually required simply makes the government's overall financial position worse. Stupid.

Forced savings through partial privatization can partially ameliorate some of the problem through several factors, most notably through increased economic growth. This would still require some combo of the "Big Three" options, but would offset some of the pain. Complete privatization without low-income subsidies would not solve the problem, as there's a large wealth-transfer component in SS already.

No matter which choice is made, you're still back to the Big Three to some degree. Higher taxes, lower benefits, and/or massive debt increases. Pick your poison. But do try to pick the one that does the least damage, not the one that does the most.

There are ways of resolving the problems that are not out-and-out radical changes, and these more moderate changes would more quickly achieve the "ownership society" that President Bush says he wants to create. I've listed some proposals on my weblog at:

http://www.randomfate.net/archives/000997.html

I'd like to see what other people think about them.

EG, I looked at your link, and I don't see that the admin says private accounts will not help. What was said was that they'd be insufficient to fix the system by themselves. A very different thing.

That CNN story also included the following lie, which we're committed to combatting every time someone tries to sell it here:

What will actually happen in 2018, according to the Social Security trustees who oversee the program, is that the money paid out in benefits will begin to exceed the amount collected in taxes. And since Social Security will run a surplus until then (and has been running one for some time), it has billions available that it can tap to fill the gap. Even under conservative estimates, the system as it stands will have enough money to pay all its promised benefits until 2042 and most of its obligations for decades after.

There is NO trust fund holding surplus dollars. Period. As soon as the amount collected via SS tax becomes less than the amount owed to retirees (2018), the government has to use other tax revenues or additional borrowing to make up the difference. Every "surplus" SS tax dollar gets spent as soon as it gets collected. EG, I dare you to acknowledge this, and to stop misleading.

The reason SS taxes are capped is that income over the cap doesn't count towards benefit payments. Whether your income was $90,001 or $900,001 or $9,000,001 your max SS benefit will be the same. The current max is a hair over $1,900/month. Raising the cap without increasing the max benefit to match is another way of saying we're going to tax higher income earners more in order to subsidize everyone else. Hmmm. Isn't that what the income tax is for?

In fact, higher-income earners are already subsidizing lower-income workers through their SS tax payments. Boosting the cap without a matching boost to max benefit payments is taking the payroll tax towards the same "progressive" structure as the income tax. Conceivably this could end up making SS both the most regressive and the most progressive tax we have, both at the same time.

The basic problem is still Congress promising more in the future than the tax will actually pay for.

Tully, as usual, you're accurate. But don't forget, the social security tax IS an income tax.

I can't say for sure, but I think most of us mentioning raising the cap realize that doing so means taxing big earners more, without giving them more.

I'm also pretty sure that this option is going to enjoy fairly widespread support when people are polled about which proposed reforms they favor. For a solid majority, it's the only painless option. Upping the retirement age and decreasing benefits hits everyone, so those are the hardest sell (yeah, and the most powerful drivers and thus the most necessary to tweak, I know). Private accounts are probably 50-50ish, what with being haunted by the ghosts of 1929 and 2001.