Thursday, April 17, 2008

Clinton and Obama on Social Security reform

Last night's Democratic presidential debate in Philadelphia contained an extended discussion of Social Security reform. Sen. Clinton's approach was to focus on a bipartisan commission, arguing that this approach led to the 1983 reforms. Obama focused on the one reform he has promoted, eliminating the payroll tax ceiling, albeit with a "donut hole" protecting people earning between $100,000 and $200-$250,000.

For what it's worth, Sen. Clinton was reasonably convincing in her argument that a bipartisan commission is the best approach to putting together a politically feasible plan. At the same time, given her apparent willingness to hand the issue over to a commission, her criticisms of Obama's plan to lift the payroll tax cap seem weak, especially since lifting the payroll tax cap is the favorite policy option for most Democrats.

Clinton said "there are more progressive ways of doing it than, you know, lifting the cap." If so, she should reveal them. Obama is correct that only around 6% of individuals earn more than the tax cap each year, and fewer still are above the $200-$250,000 range he has talked about. While funding Social Security with income taxes is potentially more progressive than lifting the tax cap -- I would have to run the numbers to be sure -- it is wholly out of character with Social Security's history as a self-financing social insurance program.

Here's what the candidates had to say:

SENATOR CLINTON: I don't want to raise taxes on anybody. I'm certainly against one of Senator Obama's ideas, which is to lift the cap on the payroll tax, because that would impose additional taxes on people who are, you know, educators here in the Philadelphia area or in the suburbs, police officers, firefighters and the like. So I think we have to be very careful about how we navigate this. So the $250,000 mark is where I am sure we're going. But beyond that, we're going to have to look and see where we are.

MR. GIBSON: Very quickly, because I owe Senator Clinton time, but, yeah, you wanted to respond.

SENATOR OBAMA: Well, Charlie, I just have to respond real quickly to Senator Clinton's last comment. What I have proposed is that we raise the cap on the payroll tax, because right now millionaires and billionaires don't have to pay beyond $97,000 a year.

That's where it's kept. Now most firefighters, most teachers, you know, they're not making over $100,000 a year. In fact, only 6 percent of the population does. And I've also said that I'd be willing to look at exempting people who are making slightly above that.

But understand the alternative is that because we're going to have fewer workers to more retirees, if we don't do anything on Social Security, then those benefits will effectively be cut, because we'll be running out of money.

MR. GIBSON: But Senator, that's a tax. That's a tax on people under $250,000.

SENATOR OBAMA: Well, no, look, let me -- let me finish my point here, Charlie. Senator Clinton just said she certainly wouldn't do this; this was a bad idea. In Iowa she, when she was outside of camera range, said to an individual there she'd certainly consider the idea. And then that was recorded, and she apparently wasn't aware that it was being recorded.

So this is an option that I would strongly consider, because the alternatives, like raising the retirement age, or cutting benefits, or raising the payroll tax on everybody, including people who make less than $97,000 a year --

MR. GIBSON: But there's a heck of a lot of --

SENATOR OBAMA: -- those are not good policy options.

MR. GIBSON: Those are a heck of a lot of people between $97,000 and $200(,000) and $250,000. If you raise the payroll taxes, that's going to raise taxes on them.

SENATOR OBAMA: And that's -- and that's -- and that's why I've said, Charlie, that I would look at potentially exempting those who are in between.

But the point is, we're going to have to capture some revenue in order to stabilize the Social Security system. You can't -- you can't get something for nothing. And if we care about Social Security, which I do, and if we are firm in our commitment to make sure that it's going to be there for the next generation, and not just for our generation, then we have an obligation to figure out how to stabilize the system.

And I think we should be honest in presenting our ideas in terms of how we're going to do that and not just say that we're going to form a commission and try to solve the problem some other way.

SENATOR CLINTON: Well, in fact, I am totally committed to making sure Social Security is solvent. If we had stayed on the path we were on at the end of my husband's administration, we sure would be in a lot better position because we had a plan to extend the life of the Social Security Trust Fund and again, President Bush decided that that wasn't a priority, that the war in Iraq and tax cuts for the wealthiest of Americans were his priorities, neither of which he's ever paid for. I think it's the first time we've ever been taken to war and had a president who wouldn't pay for it.

But when it comes to Social Security, fiscal responsibility is the first and most important step. You've got to begin to reign in the budget, pay as you go, to try to replenish our Social Security Trust Fund.

And with all due respect, the last time we had a crisis in Social Security was 1983. President Reagan and Speaker Tip O'Neill came up with a commission. That was the best and smartest way, because you've got to get Republicans and Democrats together.

That's what I will do. And I will say, number one, don't cut benefits on current beneficiaries; they're already having a hard enough time. And number two, do not impose additional tax burdens on middle-class families.

There are lots of ways we can fix Social Security that don't impose those burdens, and I will do that.

SENATOR OBAMA: That commission raised the retirement age, Charlie, and also raised the payroll tax. And so Senator Clinton, if she -- she can't have it both ways. You can't come at me for proposing a solution that will save Social Security without burdening middle- income Americans, and then suggest that somehow she's got a magic solution.

SENATOR CLINTON: But there are more progressive ways of doing it than, you know, lifting the cap. And I think we'll work it out. I have every confidence we're going to work it out. I know that we can make this happen.

Update: See posts from Marc Ambinder and Noam Scheiber.


Bruce Webb said...

Obama is taking some awfully unhelpful advice on Social Security and muddying any progressive message. Call me nutty but I tend to put it down to taking his SS cap advice from someone I have code named 'L' and his health care mandate advice from the supremely ironicaly named secret agent 'DC'

Thank God he is taking his principal economic advice from a guy whose name suggests a particularly cheesy zombie movie.

"Don't be afraid I won't let the Goulsbee suck your brains out'. Which is pretty damn ironic because I get where Prof. Austan is coming from, whereas Profs J and D from Harvard and ex alums of the Clinton WHeave me baffled.

Anonymous said...

it is very discouraging that the Democrats have learned to talk garbage about Social Security.

what Social Security needs is to be left alone at least until 2030. then a one tenth of one percent increase in the tax each year until about 2050 would close the currently projected "gap."

or, if Bruce is right, we might need to start cutting the tax by that amount.

for you privatizers out there, you might want to offer an "add on" plan: leave SS alone for now, but add on a PERS like retirement account, funded with half of the next five years routine cost of living raises.