Thursday, July 10, 2008

McCain interview on Social Security reform

John McCain was asked about Social Security reform in an interview Tuesday with the editors of the Pittsburgh Tribune-Review. Here's what he had to say:

Trib: Senator, how are you going to fix Social Security? What's your plan? We've heard over and over the system is headed toward ...

McCain: Yeah, it is, it's broken and we ...

Trib: What specifically can you do?

McCain: I think you have to do two things. One, do a better job than has been done in the past of convincing people that it's broken. I think you can do that with one chart that shows how much money is going out and how much is coming in, and when there's more going out than coming in and when there's no money left. And so you have to get that sense of urgency to the American people. And the second thing, you've got to say, 'Look, everything is on the table, let's sit down at the table.' That's what Ronald Reagan and Tip O'Neill did in 1983. They sat down, they put everything on the table. A lot of people didn't like the solution they came up with, but when the liberal Democrat from Massachusetts and the conservative president from California said this is the fix for Social Security, it went through. So you've got to put everything on the table. And for me to stand here and say we've got to have this, this and this, all that does is set things up for a confrontation. What I'm saying is I'll sit down at a table with Harry Reid, Nancy Pelosi, John Boehner and Mitch McConnell, and we'll sit down and we'll work it out, and we'll walk out and I'll give them all the credit. I'll give them all the credit because we've got to fix it. But first -- so that's my plan for fixing it.

Trib: Well, if private retirement accounts are part of the mix, we saw the opposition to that already in 2005. So could that still be part of the mix?

McCain: Everything has got to be on the table. And let me just say again, I believe that young people ought to be able to invest money in accounts with their names on it. And that means young people voluntarily. Now it got all hung up the last time with all kinds of allegations and that became the focus of the debate, rather than the crisis that Social Security is in. So I'm saying everything is on the table. I favor the ability of young Americans to put money into, on a voluntary basis, into an account with their name on it. That's what I favor. Other people favor different things. You've got to sit down at the table and you've got to hammer it out.

Trib: Do you favor raising the cap?

McCain: Pardon me?

Trib: Do you favor raising the cap?

McCain: No, and I think by doing so, as Sen. Obama wants to do, you are obviously putting a very, very big increased tax on ... middle income Americans who filing jointly and in other ways will be paying a very big increase.

This interview has gotten almost no publicity while Sen. McCain's "disgrace" comments received a great deal. Yet if you listen to the full answer McCain gives following the disgrace comment it's really very similar – and a very positive approach to take. While McCain says he opposes tax increases and favors personal accounts, he emphasizes that everything must be on the table if the two sides are going to come to a compromise. (That's a view Sen. Obama used to take, though it's unclear where he now stands. I would hope he would return to that former view and give it more emphasis.)

But s note to McCain campaign: The current payroll tax is levied on individual earnings, so for an increase in the tax cap to affect a couple one or more of them must have individual earnings above the current ceiling of $102,000. It's commonly been stated that a middle class couple with combined earnings above $102,000 would be affected by an increase in the cap (the stereotypical teacher and firefighter, etc…), but this isn't the case. Now, apparently the Obama campaign has considered applying the payroll tax to household earnings instead of individual earnings. This actually isn't a bad idea as policy, but would complicate the question of who would be impacted by Sen. Obama's proposals.


Bruce Webb said...

"One, do a better job than has been done in the past of convincing people that it's broken. I think you can do that with one chart that shows how much money is going out and how much is coming in, and when there's more going out than coming in and when there's no money left. And so you have to get that sense of urgency to the American people."

"So you've got to put everything on the table"

Well you can throw me in THAT briar patch. In 2004 President Bush made it abundently clear that tax increases were not on the table and in so doing preempted the kind of O'Neill/Reagan compromise McCain is promoting today. CNN Dec 2004: Bush: No tax hike for Social Security" "We will not raise payroll taxes to solve this problem," Bush told reporters during an Oval Office meeting with Social Security experts." He never even allowed it to be scored in dollar terms for the average worker.

Which led some of us on the other side of this question to wonder what was really going on here. Was the goal to preserve 100% of the schedule? That is was the focus really on total solvency from the beneficiaries' perspective? In which case you could ask future beneficiaries where they would set the tradeoff. At 78% of the schedule with no change in rates, at 100% of the schedule with a change in rates of 1.89% (2004) or with some solution based on tax increases, benefit cuts or some combination that would get you somewhere in between, with or without some personal account component.

That discussion never happened, not even to establish what the baseline of 'crisis' absent inaction actually was. Instead the President sharply pivoted into 'ownership society' mode and frankly the President's Men did nothing to ensure that the full range of policy was being discussed including a tax based solution.

I would be happy to fill a support role in any discussion where protectors of Social Security as currently constituted get to start with the numbers 1.7% and 78% on the table. I suspect though that John McCain would get quite the surprise when he actually sees what the cost of fixing a crisis 33 years down the road in current tax dollars for the average worker.

I don't suspect that discussion will ever happen because it would reveal the vast difference between solvency as most people would define it (100% of the scheduled benefit) and sustainable solvency as defined by the critics of the current system, which of course is a much different animal. Because in the end we seem to be settling out into a battle with different fiduciaries, my concern being with the future retirees for the most part, while the sustainable solvency crowd feeling their responsibility to future taxpayers. Which of course is not an illegitimate goal, but everyone following the discussion should know for whom the respective advocates are really speaking for.

The success of the 'There is no crisis' movement of 2005 was the result of showing people that crisis wasn't really that numerically big and was distant in time. The attempt to sell that "sense of urgency" failled because there was in fact no urgency to start with, not if you examined the problem from the trend in payroll gap over time.

The task of privatizers then and now is to show conclusively that either one) they can produce a better benefit for retirees at lower cost, or two) to sell the case that it is more important to reduce societal costs to support seniors in the future than it would be to make further sacrifices (i.e. tax increases) in the here and now to keep the system on track to pay benefits on the current schedule.

But this time they will have to do it with real numbers, the attempt to just get everyone on board the 'crisis' train, so that they could jam an unstated but actuall pre-set plan down everyones' throats once they were aboard is not going to work this time either, chart or no chart.

Anonymous said...

You know full well that the let's put everything on the table is a disingenuous attempt to not have to commit in public to what are very unpopular ideas.

If he were genuine he would say let's cut the benefits for half the amount and let's raise taxes for the other half and we'll figure out how the pain is distributed.

Instead he said he opposes the type of tax increase that imposes pain on those most able to pay it and then *lies* about who those people really are. If you have been in Congress for 27 years and you really do no know that the payroll tax cap applies to individual income, you have no business being President.

Oh, and he is in favor of personal accounts that have no affect on solvency whatsoever and could be implemented today with prefect justification as as total add-on to SS (mandatory savings), or as an expansion of 401K or IRA system of voluntary wage related savings.

But you would prefer that we pretend he is being the true statesmen while his campaign repeats over and over that the other guy just wants to raise your (and by "your" he means the well-paid newsmen who cover the campaign). I'm not buying it.

Much better to say he will handle this behind closed doors like adults than to campaign on the idea that he only wants to cut benefits.

Anonymous said...

The "crisis" is really that they might come and take more of the rich people's money. That would cause heaven and earth to shift and the walls come tumbling down.

Think about it...the crisis is always described as on the revenue side, never on the income adequacy in retirement side. Who is offering to increase benefits?

We could go to PAYGO permanently and eat the 22% cut in 2040 and the system is magically out of crisis forever, right?

1.1% of GDP applied to revenue to ensure the same measure of relative economic security as current retirees enjoy, for the infinite future... that's about the cost, right? Some crisis.

As much as I admire that Andrew tries to put facts before ideology as much as he can , in this case, the crisis is about ideology. that why the "disgrace" comment was so revealing.

Medicare, well all of health care, now that's another story.

Jim Glass said...

Think about it ... the crisis is always described as on the revenue side, never on the income adequacy in retirement side. Who is offering to increase benefits?

Oh, I think means testing -- which relates directly to income adequacy on the retirement side -- is discussed quite a lot.

Is it really "progressive" to make Warren Buffett's employees at Dairy Queen pay ever more for his entitlement benefits along with those of all his fellow rich and the millions of quite well off baby boomers -- like the first boomer to draw benefits, Kathleen Casey-Kirschling, shown here sailing off on her yacht the First Boomer.

Do you favor means testing? If so, we can settle the Social Security problem in a jiffy and take a fair chunk out of the Medicare one right away too.

If not ... I have a hard time seeing the progressive way to tax the working classes and the poor ever more to assure payment of full-and-rising benefits to the rich -- whose retirements are already fully "income adequate".