Wednesday, October 29, 2008

Marmor and Mashaw: “Shoring up Social Security”

Ted Marmor and Jerry Mashaw are professors at Yale University and members of the National Academy of Social Insurance (Mashaw is currently on NASI's board, while Marmow served from 1986-1996). Together they write in today's Philadelphia Inquirer on the presidential candidate's views regarding reform:

For the near term, the Social Security trust fund is an island in a sea of budgetary red ink. But, bombarded by talk of a crisis in Social Security financing, many Americans harbor the image of a program on the verge of collapse.

Trustees expect the fund to have a $196 billion surplus in 2008, and continued surpluses are projected for the next 18 years. Reserves are expected to grow to more than $5.5 trillion by 2026.

So what's the problem? Beginning in 2017, tax revenues flowing into the fund are projected to fall below expenditures. If the trustees' projections are correct and if no changes are made, reserves will be depleted by 2041. Thereafter, Social Security taxes would cover only about 78 percent of benefits due.

We should be clear that these are projections, not predictions. Some analysts think they are too gloomy, others too sunny. But when a program supports so many U.S. families, it is prudent to try to secure its future.

What have the presidential candidates told us about their plans for keeping Social Security's promises? Not very much.

John McCain's position is difficult to pin down. He has expressed antipathy toward the program, calling it a disgrace at one point. His Web site suggests he is still committed to President Bush's plan to "privatize" it, at least partly.

On the campaign trail, however, McCain has tried to distinguish privatization from Social Security's long-term financing needs. He could hardly do otherwise. Diverting some Social Security taxes to private, risk-bearing accounts would make the program's long-term financial picture worse, not better.

At times, McCain has seemed to promote delegating the Social Security-financing issue to a bipartisan commission. That may well be a good idea. But it provides no information on where McCain really stands on shoring up the program.

There are only three ways to do that: Increase tax revenues, decrease benefits, or increase the returns on the Social Security trust fund. The balance among those is what the political struggle over Social Security financing is about.

Barack Obama, unlike McCain, has strongly supported Social Security in its current form and promised to maintain benefit levels for future retirees. He says he would shore up the program's finances by levying Social Security taxes on incomes above $250,000. Today, Social Security taxes are not collected on income above $102,000.

It's not clear whether Obama's plan would actually fix Social Security, but it is consistent with his promise not to levy new taxes on middle-income Americans. This may be politically astute for this election year, but it is politically dangerous for the program.

Social Security has remained immensely popular with U.S. voters largely because it combines two visions of fairness. Benefits are progressive: Lower-wage workers get larger retirement benefits than higher-wage workers in relation to their contributions. But it's not simply a welfare program: The more a worker pays into it, the higher that worker's benefits.

The Obama proposal breaks the connection between taxes paid and benefits received. Benefits still would be based on taxes paid on incomes up to $102,000. But retirees would not get additional benefits for the taxes they paid on income above $250,000.

Demanding increased taxes without increased benefits is not prudent for maintaining political support for Social Security. It damages the program's long-standing image as earned rather than handed out.

Unfortunately, in the heat of this election campaign, one of the nation's most important and popular programs is not being treated seriously. McCain's only concrete proposal is standard Republican dogma: Whatever the problem, privatization is the solution. Obama responds with a standard Democratic nostrum: When in fiscal trouble, soak the rich.

The U.S. electorate deserves better. Serious people have made many sensible proposals for safeguarding Social Security's long-term financing. Perhaps, after the election is over, we will get around to discussing some of them.


shoffy22 said...

Interesting article. I wonder how Obama and McCain's willingness to discuss Social Security reforms during the campaign compares to past presidential candidates. Perhaps even though both of their ideas are incomplete they deserve some props for supporting some ideas, such as a partial personal account system or levying payroll taxes on wages above $250,000? Or maybe there have been other candidates in the past who have done a better job of discussing Social Security reform in greater detail? It would be very interesting to find out whether Reagan and Carter discussed Social Security much in 1980, given the 1983 reforms that followed.

Andrew G. Biggs said...

Good question. Although the candidate's get criticized for not being specific enough, I'm not sure they've really been any worse than previous candidates. Bush didn't discuss his actual solvency plan until after the 2004 election, and I don't remember Gore or Kerry having anything particularly specific/plausible either.
I believe Carter talked a bit about Social Security -- something tells me he favored general revenue financing -- but I don't remember for sure whether it was pre- or post-election. Worth checking on, which I'll do when I get some time. Thanks!