Obama Ad Hits McCain on Social Security

Barack Obama has a new ad criticizing John McCain for his support for adding personal retirement accounts to Social Security – an effective attack given the backdrop of the past several weeks. Take a look:

The claim 'cutting benefits in half' is a big stretch. President Bush's proposal for 'progressive indexing' would have addressed about half the long-term deficit – that's a lot different than cutting benefits in half. But we're in an election year so these kinds of claims by either side shouldn't be all that surprising.

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NY Times on Social Security in Campaign ‘08

The New York Times has a story today on how the McCain and Obama campaigns are treating Social Security reform. It's a good story overall and it's great to see some attention paid to the policy details rather than just the politics.

However, I think the story's title --"Social Security Too Hot to Touch? Not in 2008" – misses the point a bit. What the story shows is that for both Sen. McCain and Sen. Obama Social Security has been a politically difficult issue to address. McCain has had trouble with his conservative base over his willingness to put everything "on the table" (Obama had the same problem when he made a similar statement) while the vagueness of Obama's own proposal is clearly designed for purposes of political protection.

One section is worth highlighting (and not simply because I'm quoted in it):

To begin to attack the problem now, Mr. Obama would subject all wages above $250,000 a year to the payroll tax. That concept has been nicknamed the "doughnut hole" because it would exempt wages between $102,000 a year, the current ceiling for contributions, and $250,000.

"What Barack Obama is doing is different from what people running for president traditionally have done," Jason Furman, Mr. Obama's chief economic adviser, said in an interview. "He's putting an option on the table, not just saying he wants to work with Congress, but also saying what he wants to work on."

While more specific than Mr. McCain's plan, the Obama proposal raises questions. The tax rate Mr. Obama would apply to wages over $250,000 has not been established, but it would be lower than the combined 12.4 percent that employees and employers now jointly pay. "We've studied a range of plans with combined employer and employee rates between 2 and 4 percent," Mr. Furman said.

By itself, the Obama proposal will not guarantee the solvency of Social Security. Andrew Biggs, a Social Security expert at the conservative American Enterprise Institute, calculates that the plan would reduce the gap by 15 percent to 43 percent, depending on the level of the surtax, which he complains "is being fuzzed up to prevent people like me from running the numbers."

It is also not clear whether those paying the additional payroll tax would receive more benefits, as the system now mandates. Mr. Furman said "it is factually inaccurate to say that a decision has been made to de-link taxes from benefits," because "that is something you'd want to work out with Congress."

While Sen. Obama deserves credit for putting an option on the table – something Sen. McCain hasn't done to date – as it currently stands Obama's option is barely a policy. We know people earning over $250,000 will pay more, but we don't know how much and we don't know whether they'd earn any extra benefits. This forces people (like me) to make the best assumptions we can about how things would work.

Here I estimated the effects of a 4 percent surtax on earnings over $250,000, on which no extra benefits would be paid. This would improve the 75-year actuarial balance by around 0.27 percent of payroll, reducing the total 1.7 percent deficit by around 15 percent. This is about the most the Obama approach could get. If benefits were not delinked from taxes, the improvements would be smaller (by around one-fifth, I believe). If the tax rate were 2 percent rather than 4 percent, the gains would be cut in half. You get the drift.

The point here is that under a reasonable range of assumptions, Sen. Obama's plan doesn't get you very far – certainly not far enough that you could rule out raising the retirement age or reducing benefits.

Update: See today's Wall Street Journal op-ed by Jason Furman and Austan Goolsbee for a few more details on the Social Security side of things. One new detail is that the tax increase would not begin until "a decade or more from now." The numbers I cite above assume a 2015 start date, so the solvency improvements would be a tiny bit smaller than before.

Another key point: Goolsbee and Furman argue that Obama's plan is similar to one floated by Sen. Lindsey Graham several years ago, which Sen. McCain at the time said he could support. This is a valid point, but several key differences should be pointed out. First, under Graham's plan any tax increases would be used to fund personal retirement accounts, not finance the curent program or build the trust fund. Second, Graham's proposal included a surtax along with a number of other policies. Obama proposes a surtax but rejects any other changes, putting him on the wrong side of the mathematical divide.

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Academy of actuaries: Raise the retirement age

On Monday the Academy of Actuaries will hold a press conference at the National Press Club to release a new paper on Social Security reform. The sneak preview, via the Associated Press's Jesse J. Holland, is that the actuaries favor raising the retirement age as part of a larger Social Security deal.

Want to keep Social Security from going bankrupt? Make future recipients wait longer for their first benefit check because they probably will live longer anyway, an influential group of actuaries says.

The next president and a new Congress will come under increasing pressure to act to fix the Social Security system. Democratic presidential candidate Barack Obama rejects any increase in the retirement age while his GOP rival John McCain opposes tax increases as a possible fix.

The American Academy of Actuaries, which advises policymakers on risk and financial security issues, wants any potential solution the White House and lawmakers might consider to include raising the retirement age from the current range of 65-to-67-years-old. The group provided The Associated Press with an advance look Thursday of its recommendations.

Current benefits are supplied by payroll taxes from today's workers, all of whom pay a 6.2 percent Social Security payroll tax on income up to $102,000. Their employers match it, for a total tax of 12.4 percent. The tax applies only to earned income, not to passive income such as dividends and interest.

Benefits are projected to exceed the Social Security system's tax revenues in about nine years. The program's trustees have said the Social Security trust fund will be depleted by 2041 without changes.

A major problem, the actuaries say, is that people are living longer. That means they are drawing more money from the program.

When Social Security started in 1935, the average American's life expectancy was just under 60 years, according to the Social Security Administration. By comparison, people now eligible for Social Security can expect to live on average a little past 76, the agency says, "meaning workers have more time for retirement and more time to collect Social Security."

For many years, 65 has been the retirement age to receive full benefits. But under changes in 1983, only people born before Jan. 2, 1938, can collect full benefits at 65. Those born after that date face a gradually rising retirement age for full benefits until it reaches 67.

Current estimates show that by 2040, 65-year-old men and women could live at least 18 more years after becoming eligible for full Social Security benefits.

"You just can't have people living longer and longer and longer, and have the program with a frozen normal retirement age of 67. It just doesn't make sense," said Bruce Schobel, the chairman of an academy task force on retirement security principles. "Eventually people will have a larger and larger proportion of their lives spent in retirement until you reach the point where we just can't afford it."

The academy is not staking out a position on when people should retire and acknowledges that saving Social Security will take more than just raising the retirement age.

"All that we're suggesting is that some increase in the retirement age should be part of any package," Schobel said.

Obama already has rejected such advice. "We will not raise the retirement age," Obama said in June at a campaign event in North Carolina.

Obama has, however, called for a Social Security payroll tax on incomes above $250,000 a year, compared with the current $102,000 threshold.

"Barack Obama is opposed to raising the retirement age. He believes we should strengthen Social Security while protecting the middle-class families that rely on it," said Jason Furman, Obama's campaign economic policy director. "To that end, he would like to work with Congress on a plan to ensure that people making over $250,000 pay a little more to strengthen this vital program for generations to come."

McCain originally said everything was on the table to fix Social Security. He recently has amended that position, saying he would not increase payroll taxes. "I want to look you in the eye: I will not raise taxes or support a tax increase," he told supporters Wednesday.

Former Texas Sen. Phil Gramm, who served as a McCain adviser until he resigned earlier this month, told The Washington Times this month that a bipartisan deal to save Social Security might include raising the retirement age to 70 over 30 years.

Sens. McCain and Obama are both in a bit of a fix here, although Obama worse than McCain. McCain can reject tax increases and still more or less fix Social Security, say through a combination of raising the retirement age and progressive benefit reductions for high earning retirees. (If you let the NRA rise to 70 by 2080 or so, you could do a benefit reduction that shielded the bottom half the earnings distribution from cuts.) The prospects for political success may be limited, but he can at least put together a plan that's plausible as policy.

Obama's in a bit deeper: his plan to hit earners making over $250,000 would fix maybe 15 percent of the long-term deficit, and he's rejected raising the retirement age or cutting benefits. Where does the other 85 percent (much less the additional fixes needed to make the system sustainable beyond 75 years ) come from? If someone has an idea how they plan on making this work, please let me know.

Update: Reader AK questioned whether raising the retirement age would be regressive, given the shorter life expectancies of low earners. The Excel file below shows that raising the normal retirement age wouldn't be regressive, since it would reduce everyone's benefits by the same amount. Raising the early eligibility age -- 62 -- would be regressive and cause larger percentage cuts for low earners.
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Clarified: McCain position on Social Security taxes

Marc Ambinder reports the full statement Sen. McCain made yesterday regarding raising Social Security taxes as part of a reform package:

"I am opposed to raising taxes. Senator Obama wants to raise your taxes. He wants to raise your taxes and if any negotiation I might have when I go in my position will be that I am opposed to raising taxes, but we have to work together to save Social Security."

McCain has been bashed from both sides for his recent statements on taxes and reform, and granted they've not always been as artful/programmed as some campaigns might want them to be. But the substantive position – I'm against raising taxes, but I'm not against talking to people who disagree with me – is a sensible one.

Updates: The Wall Street Journal editorial page criticizes McCain for letting tax increase on the table; the Tax Policy Center is disappointed in McCain's seeming backtracking.

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McCain: Social Security Tax Hike On The Table

ABC News reports a possible recalibration of Sen. John McCain's approach to Social Security reform:

Sen. John McCain made clear this weekend that when it comes to fixing Social Security, "everything is on the table," including a possible payroll tax increase.

"There is nothing I would take off the table. There was nothing I would demand," McCain told ABC News' George Stephanopoulos in an exclusive interview on "This Week." "I think that's the way that Ronald Reagan and Tip O'Neill did it -- and that's what we have to do again."

When asked if that includes a possible hike in the payroll tax, McCain reiterated that nothing -- including such a tax hike -- is "off the table."

"I don't want tax increases. Of course, I'd like to have young Americans have some of their money put into an account with their name on it," McCain said.

This will provoke protest from some, who think that tax increases should never even be considered, and others, who will simply view it as a flip-flop.

For myself, I don't see an inconsistency between Sen. McCain saying he opposes tax increases for Social Security but is willing to talk to people who favor them. (Similarly, my main beef with Sen. Obama's plan to levy taxes on earnings above $250,000 isn't the policy – though I don't particularly like it – it's that he's portrayed it as meaning he could rule out benefit reductions or increases in the retirement age, which isn't the case.) It's important to distinguish what we favor and oppose from things that are "must haves" or "can't haves." In the 2005 reform debate, the Democratic leadership considered personal accounts funded from payroll taxes a "can't have," so much so that they wouldn't discuss anything unless they were taken off the table. Many Republicans have a similar view toward raising taxes to fix Social Security. While I favor personal accounts and oppose tax increases, refusing to talk unless options you oppose are taken off the table is a recipe for inaction, and the longer we put off taking action the more difficult the problem will be to solve.

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AARP event available online

On Monday, the AARP held an event on "Campaign 2008 and the Federal Deficit" featuring Doug Holtz-Eakin speaking on behalf of the McCain campaign, Jeff Liebman speaking for the Obama campaign, with commentary from Diane Lim Rogers of the Concord Coalition (Economist Mom blog) and John Rother from AARP. The event was emceed by David Wessell of the Wall Street Journal.

Here's a link to the main page, and here's a direct link to the video player.

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LA Times on McCain Social Security Stance

The LA Times Peter Wallsten writes on Sen. McCain's views on Social Security reform.

McCain, the presumed Republican presidential nominee, spoke several times last week about changing how the popular retirement program is funded, at one point calling it a "disgrace" that younger workers are forced to pay for a plan that, in his view, is unlikely to benefit them when they retire.

Democrats are gearing up to turn McCain's stand on Social Security, and his willingness to consider a privatization plan, into a key campaign issue. They say changing the program in that way would undermine retirees' benefits, and they hope to use the issue to harm the Arizona senator's support among a set of voters who tilt toward him -- seniors.

The story is more politics than policy, but worth reading for that angle.

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McCain, disgrace, etc.

This morning's news is that in an event Monday Sen. John McCain used the words "Social Security" and "disgrace" in the same paragraph, thereby prompting headlines such as "McCain Says Social Security Is 'A Disgrace'" on the probably non-entirely-unbiased AFL-CIO blog.

Here's video of the McCain statement via You Tube so you can judge for yourself:

A couple points:

First, McCain said that, unless Social Security is fixed, younger Americans won't receive the benefits that present-day retirees have. In one sense, this is wrong – real, inflation adjusted retirement benefits for future cohorts will be just at least as high as for today. However, in another sense – and, to be blunt, the sense that most of the left interprets "benefit cuts" – McCain was correct: future retirees won't receive the full promised benefits that current retirees are, and thus won't receive the same replacement rates (benefits relative to pre-retirement earnings) that current retirees do.

Second, it's clear that what McCain calls a disgrace isn't Social Security itself, but the way it has been financed. Pay-as-you-go financing – transferring taxes from workers to beneficiaries – combined with changing demographics is the principal reason that future beneficiaries won't receive their full scheduled benefits (that's the "disgrace" part). A pre-funded system, in which each cohort puts aside savings to fund its own retirement, isn't nearly as subject to demographic pressures as a pay-as-you-go program. (Two ways in which it is subject: rising life expectancies, which account for Social Security's cost growth from mid-century on, affect funded and pay-as-you-go programs identically. Also, demographic pressures can affect interest rates, which would affect funded programs through the returns on their assets.)

Third, this is really pretty silly stuff.

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McCain position change on tax max?

In light of the McCain campaign's criticism of Sen. Obama for proposing lifting the Social Security payroll tax ceiling, currently $102,000, the ABC news blog Political Radar focuses on Sen. McCain's own views on the subject.

McCain Backtracks on Social Security Tax Hike

June 10, 2008 7:34 PM

ABC News' Teddy Davis and Gregory Wallace Report: Sen. John McCain, R-Ariz., hammered Sen. Barack Obama, D-Ill., on Tuesday for proposing higher Social Security taxes. The presumptive Republican nominee neglected to mention, however, that he was open to a similar approach in 2005.

"The Social Security tax cap, he wants to raise from $105,000 to I think $200,000," McCain told Bloomberg News' Peter Cook. "Do you know how many employers, small-business people that would mean a 12-percent increase in their Social Security tax?"

"I mean, this is just -- Senator Obama wants to raise taxes," he continued. "I want to keep tax cuts in place. And I think that it's important that in a time of real crisis, economic crisis in America, the last thing we want to do is raise people's taxes now."

On a Feb., 23, 2005, edition of "Meet the Press," NBC's Tim Russert asked McCain if he would support "as part of the solution to Social Security's solvency problem, that you lift the cap so that you would pay payroll tax, Social Security tax, not just on the first $90,000 of your income, but perhaps even higher?"

"As part of a compromise," said McCain, "I could, and other sacrifices, because we all know that it doesn't add up until we make some very serious and fundamental changes."

Two years later, during a May 13, 2007, appearance on "Meet the Press," Russert asked McCain if he was still open to lifting the Social Security tax cap as part of a compromise.

The Arizona senator said that he is opposed to tax increases while acknowledging that "tough decisions" would be needed as part of a compromise.

"Am I opposed to tax increases?" said McCain. "Yes. But we've got to sit down together and figure out what our options are, and tough decisions have to be made, Republicans and Democrats. And I know how to do that."

Asked about the 2005 remark, a McCain spokesman acknowledged the tension with his current position while arguing that the Arizona senator's criticism of his Democratic rival is still valid because McCain has spoken out against higher Social Security taxes as a 2008 White House hopeful.

"The contrast here couldn't be more clear, and pulling one dated quote out of thousands won't change it," McCain adviser Brian Rogers told ABC News. "John McCain believes we can fix Social Security without raising taxes. Senator Obama has made clear his intention to uncap the payroll tax, raising taxes while failing to restore the program's long-term solvency."

To put the retirement program on sounder footing, Obama has suggested imposing the 12.4 percent Social Security tax on more income.

At present, the tax is only imposed on roughly the first $100,000 of income.

In a 2007 op-ed written for an Iowa newspaper, Obama floated the possibility of completing eliminating the Social Security tax cap.

More recently, Obama and his advisers have said on multiple occasions that he would continue to exempt income between roughly $100,000 and around $200,000 from the Social Security tax while imposing it on income above $200,000.

Both Senators have put themselves in difficult spots. Sen. Obama has proposed raising the tax cap, but used this as a reason to rule out any other changes such as cutting benefits or increasing the retirement age. Sen. McCain has rejected any increase in the tax cap, although he once said he could accept at least some increase as part of a larger compromise. Social Security reform will ultimately be a compromise that contains a lot of things that no one likes, so it make sense to focus on what you want to do but not spend a lot of time ruling things out.

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IBD: Obama And McCain Divided On Reform For Social Security

Jed Graham writes in Investor's Business Daily on how Senator's Obama and McCain stack up on Social Security reform. I'm briefly quote, and will expand on the point at the bottom.

The Social Security fixes touted by John McCain and Barack Obama couldn't be any further apart — unless Obama was offering a true fix.

McCain would close looming Social Security shortfalls by curbing benefit promises. Obama would leave benefits untouched and rely just on tax hikes — though not nearly enough to erase the funding gap.

But their plans do share one common feature: Both would likely be dead on arrival in Congress, say Social Security reform advocates.

"They're both very politically attractive options if you're running in a primary," said Andrew Biggs, resident scholar at the conservative American Enterprise Institute. "I don't see either as being politically feasible."

Still, their plans give a sense of the priorities each would bring as president to any serious talks with Congress. McCain would push for Social Security reform that depends much more on spending restraint than new taxes. He is prepared to ask for broad sacrifice.

"My children and their children will not receive the benefits we will enjoy," he said in a 2006 speech on entitlements. "That is an inescapable fact, and any politician who tells you otherwise, Democrat or Republican, is lying."

Half A Plan

Obama doesn't want to ask anyone who isn't rich to sacrifice. He'll push for a big tax hike on higher earners and eschews benefit cuts.

"The best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected," Obama said recently. "That way we can extend the promise of Social Security without shifting the burden on to seniors."

The 12.4% Social Security tax phases out at $102,000, but Obama would slap the tax on high earners.

He says he would create a "donut hole," shielding some wages above $102,000 from the tax so as not to "ensnare middle class Americans."

Only the tiny fraction of workers earning perhaps over $200,000 would be hit. While workers only pay half the 12.4% tax, employers would most likely pass on their share by reducing worker salaries.

This hike would come on top of Obama's bid to reverse the Bush tax cuts for higher earners to pay for expanding health care coverage. Thus the top marginal rate on wages could near 55% vs. 37.9% now, including Medicare taxes.

By reserving such a big tax hike for Social Security, Obama would limit the options for dealing with far more daunting fiscal challenges posed by Medicare and Medicaid.

"It's important for people not to look at Social Security in isolation," said Robert Bixby, executive director of the fiscal watchdog Concord Coalition.

"It's easier to do cost control for Social Security than it is for Medicare," he said. "If you use the revenue option for Social Security, that means it might not be available for other things."

But Bixby suspects that any politically viable Social Security fix will include benefit cuts and tax hikes.

Closing entitlement deficits by relying "exclusively or perhaps even primarily on increased revenues . . . could significantly impair economic growth," the Congressional Budget Office has said.

An IBD analysis shows that a 12.4% tax on wages over $200,000 would only delay Social Security's cash-flow deficits by four years to 2021. Over 75 years, the plan would erase just half of the $6.5 trillion unfunded liability at present value.

That includes $2.2 trillion of government IOUs in the trust fund. As Social Security's trustees noted last year, "Treasury must still come up with this amount in future cash" to make good on those IOUs.

McCain has yet to spell out how he'd alter benefits, such as lifting the retirement age. But the changes would be big. By 2041, Social Security could only pay 78% of scheduled benefits without tax hikes.

McCain has long backed the idea of letting workers invest some of their Social Security taxes to try to offset some of the benefit cuts.

President Bush pushed personal accounts in 2005, but made little headway on Capitol Hill.

Obama has attacked the idea as a way to "gamble away people's retirement on the stock market."

In a possible hint at compromise, McCain said he favors "some form of personal retirement accounts."

McCain might accept accounts financed via a dollop of income on top of the payroll tax, Bixby says.

"Then you get into the question of whether it's a tax increase," he said. "I don't think it is. The money wouldn't be going to the government."

Some context on my thoughts: In a Republican primary, it's almost impossible to talk about any form of increased revenues for Social Security, while in a Democratic primary it's almost impossible to talk about any reductions in benefits. This is not to say that either candidate favors a path other than the one they've outlined, but merely what is appealing to either party's base is not necessarily something that can pass in Congress and be signed by the President. Ultimately, Social Security reform will be a package of different provisions. While interest groups on either side pressure candidates to rule out provisions they don't favor, Congress and a President McCain/Obama will in the end have to say yes or no to a package. Should a president oppose an otherwise perfect bill because it contained a penny of tax increases/benefit cuts? If not, then it probably makes sense for them to keep their options open and focus on how to build a process where both sides can get together to hash things out. Read more!

Obama discusses Social Security reform

Here's Barack Obama in Gresham, Oregon discussing Social Security reform, both his own ideas and criticism of Sen. McCain:



Obama says that a first priority is to stop spending the Social Security surplus, which implies balancing the non-Social Security "on-budget."

Second, he opposes any changes such as increasing the normal retirement age or reducing annual cost of living increases, because he believes his own plan -- eliminating the payroll tax ceiling, with a "donut hole" between the current ceiling of $102,000 and around $250,000 -- will be sufficient.

Obama proposes eliminating income taxes on Social Security benefits for individuals earning less than $50,000 in retirement. Obama says this will benefit around 7 million people, at an average of $1,400 per person. As this income tax revenue currently flows to Social Security, this will reduce the program's solvency. (While I don't know the source of his numbers, taking him at his word this would cost around $9.8 billion annually -- a lot of money, though relatively small on Social Security's scale.)

Obama also discusses his plan to automatically enroll individuals in workplace defined contribution pension plans. This is a very good idea, with bipartisan support. (See this proposal from the Retirement Security Project at the Brookings Institution.)

Update: A friend emails: "I guess Obama is unconcerned about generational equity. He wants to reduce taxes on people already getting the best deal (current retirees) and increase them on the generations already getting the worst deal (current workers)."

Me: Hard to deny that's the net result Sen. Obama's policies. To a large degree, Social Security is all about spreading cost burdens over time; making Social Security an even better deal for current retirees will require larger tax increases or benefit reductions on future participants. It's not clear why that's justified on either a policy or a moral basis, though electorally it's got an obvious appeal. Read more!

Wash Post: Obama Knocks McCain on Social Security

From the Post's On the Trail blog:

GRESHAM, Ore. Sen. Barack Obama came to a senior citizens center here to discuss the squeeze faced by middle-class retirees and reiterate his longstanding proposal to eliminate income taxes for any senior making less than $50,000 per year.

The proposal came as the Illinois senator continued to focus his intentions not on Sen. Hillary Rodham Clinton, his rival in a Democratic primary contest in Oregon Tuesday, but instead on Republican Sen. John McCain.

Obama has spent the past week seeking to tie McCain to President Bush and foregrounding the differences between Obama's views and McCain's on a range of issues, including foreign policy, rural and farm issues, manufacturing jobs, energy reform and health care.

In an hour-long forum with about 50 seniors, Obama turned his attention to the financial pressures facing those in retirement, which he said is something people are "most worried about."

"That American dream feels like it's slipping away," he said.

The senator laid out a plan to "adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected. That way we can extend the promise of Social Security without shifting the burden onto seniors." He said the plan would include "a donut hole" to make sure that the change did not "ensnare" middle class Americans.

He also suggested eliminating income taxes for any retiree making less than $50,000 per year.

Obama said his approach differed sharply from that of McCain, who "has already said that he supports private accounts for Social Security -- in his words, 'along the lines that President Bush proposed.'"

"Let me be clear: privatizing Social Security was a bad idea when George W. Bush proposed it. It's a bad idea today. It would cost a trillion dollars to implement at the front end, and would put the retirement plans of millions of Americans at risk on a volatile Wall Street," Obama said. "That's why I stood up against this plan in the Senate, and that's why I won't stand for it as president."

Tucker Bounds, a McCain spokesman, responded to Obama's Oregon remarks this afternoon, saying "Barack Obama's response to our slowing economy is to raise taxes on job creating investment. His response to high gas prices is to raise taxes on oil."

"With his lack of experience, it should be no surprise that Barack Obama's response to the problems facing Social Security is to raise Social Security taxes, while making mis-informed partisan attacks," Bounds said. "His proposal for billions upon billions in tax increases on Social Security is just another example of his weak economic judgment. John McCain has been clear about his belief that we must fix Social Security for future generations and keep our promise to today's retirees, but raising taxes should not be the answer to every problem."

Not much of substance to add here, except a couple quick points:

• First, Obama's plan -- even excepting the reduction in income taxes on retirement benefits -- wouldn't come close to saving Social Security. He's still further along than McCain, who hasn't endorsed anything specific yet, though he has stated he'd focus on holding back on benefit growth;
• Second, the question of whether to have personal accounts isn't related to solvency. Rather, it's about how to spread the costs of solvency over time -- accounts, if properly structured, can set aside money today to ease burdens on future generations -- and the costs and benefits of allowing low-income workers to diversify their retirement portfolio to include stocks and bonds.

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John McCain on Social Security

Courtesy of The Wonk Room, which takes a decidedly negative view of McCain's staement, is a short passage on Social Security reform from, of all places, the Regis and Kelly show:

MCCAIN: What should be partisan about the fact that Social Security is going to go broke? I mean, should we be divided up among Republican and Democrat…

REGIS: Do you have a plan?

MCCAIN: Yes, sir. It’s gonna require, though, cooperation and participation by the other side. And I’ll reach my hand out…

REGIS: Is it privatization of the Social Security program?

MCCAIN: No, no it isn’t. But I would say that I support…I’d put everything on the table to start with…but second of all…young workers ought to be able to put part of their salary, part of their taxes into Social Security, into an account with their name on it. But that would not in any way effect older workers. But you’ve got to have a negotiation.

The running question underlying this and previous statements from McCain and his campaign is whether he supports so-called "carve out" accounts funded from the payroll tax or "add-on" accounts funded with additional contributions.

Here is the McCain campaign's "official" position on Social Security reform:

Reform Social Security: John McCain will fight to save the future of Social Security and believes that we may meet our obligations to the retirees of today and the future without raising taxes. John McCain supports supplementing the current Social Security system with personal accounts -- but not as a substitute for addressing benefit promises that cannot be kept. John McCain will reach across the aisle, but if the Democrats do not act, he will. No problem is in more need of honesty than the looming financial challenges of entitlement programs. Americans have the right to know the truth and John McCain will not leave office without fixing the problems that threatens our future prosperity and power.

This statement talks about accounts "supplementing" traditional Social Security benefits, which some have take as implying an add-on account, while today's statement seems to point toward a carve-out.

I suspect the true answer is that the "add-on vs carve-out" question hasn't really been decided, and at this point there probably isn't too much need to. Social Security reform will ultimately be a negotiated settlement between the parties, so what matters most will be the reform package, not the individual provisions. Read more!