Marginal Utility

by Tom Bozzo

Hullaballoo's dday recommends an L.A. Times article by Ricardo Alonso-Zaldivar, "Presidential hopefuls are mum on Medicare and Social Security woes," as a "dumb article" And indeed it is.

As dday notes, Social Security is not a particularly urgent problem (though more on that in a moment), and there might just be a problem or two or three that's more urgent than the need to come up with money to plug a gap between payroll taxes and Social Security benefits in the 2040s. On Medicare, the Democratic candidates would deal with the issue in large part through more comprehensive health care reforms. So they are not so much mum.

In fact, one of the first (if passing) waves of Obama disillusionment resulted from his talking about Social Security using what might be viewed as be Republican frames. Moreover, while Alonso-Zaldivar remarks that

The two programs on which millions of elderly Americans depend are apparently just too hot to handle -- especially since any realistic solution is likely to involve a politically unpalatable mix of higher taxes and lower benefits.

this esoteric Intertubal resource called BarackObama.com contains a Web page containing the following words, quoted verbatim:

Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $97,500 a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.

So, exactly contrary to the article, Social Security is not too hot for Obama to propose a "realistic solution." By the way, this solution is what put me back on the bandwagon, as the very smart Robert Waldmann reminded me some time back that raising taxes on the well-to-do isn't exactly the Republican way of dealing with this sort of thing. (The real Social Security funding issue is that the Bush tax cuts took the money that would repay the bonds held in the Lockbox and gave it to upper-income taxpayers via the tax "cuts." While in a world of magic ponies, I'd prefer to address the issue through the income tax system rather than the payroll tax system — since it's through the latter that IMHO needless tax preferences for capital income can be ended — the bottom line is that money is fungible and removing the cap on the Social Security tax is a big step to extracting the needed funds from the right people.)

And where would we be without the obligatory fluffing of Saint John McCain for a seemingly sensible position he doesn't actually hold? Writes Alonso-Zalvidar:

Of the three candidates, McCain is running as the most fiscally conservative. He criticized the Medicare prescription benefit when it was created in 2003, saying that Congress and President Bush failed to provide for the long-term cost.

Now, what does Candidate McCain say? Again, turning to the Internets:

Lower Medicare Premiums: Seniors face a growing threat from higher Medicare premiums that tax away their Social Security and retirement savings. [emphasis in original]

This is styled as a "retirement tax cut." By taking money out of the system, McCain would make the funding problem worse in exactly the sort of pander that Alonso-Zalvidar is supposed to be criticizing. Moreover, what about the rest of the "fiscally conservative" McCain platform? We have promises to:

• eliminate the AMT
• make permanent the Bush tax cuts (which he was against before he was for them, natch)
• cut corporate tax rates and change the tax treatment of equipment depreciation
  
• not impose a slew of other taxes

which he would offset by

• eliminat[ing] earmarks, wasteful subsidies, and pork-barrel spending
• eliminat[ing] earmarks, wasteful subsidies, and pork-barrel spending (Really, it says that twice! Yet even Gail Collins knows this isn't a major component of federal spending)
  
• reforming military procurement practices (fine, but hardly an offset to an indefinite commitment to the Gulf War II)
• partially privatizing Social Security (which also costs A Lot).

In short, the "fiscal conservative" McCain would reduce federal government revenues by trillions of dollars over the infinite horizon, spend trillions more on the war and Social Security bamboozlement, and save a few billion here and there via the trivial Waste, Fraud and Abuse play. Evidently, fiscal conservatism doesn't mean what it used to. (Over at Media Matters, they were thinking much the same thing.)

Labels: Journamalism, social security

by Tom Bozzo

Konstantin Magin of UC-Berkeley has a little Economist's Voice article given the provocative title, "Why Liberals Should Enthusiastically Support Social Security Personal Accounts." You can Read the Whole Thing via a guest registration step, but Magin's argument is, in summary:

1. Lots of people don't own stocks, and
2. Therefore they're foregoing stock market returns, which are
3. Really, really good, especially over the long haul,
4. Really, really! so
5. Private Social Security accounts would let everyone in on the bounty at negligible risk [*], while simultaneously solving the problem that politicians raiding the Lockbox imperils the payment of future benefits. It's a win-win!

Under Magin's assumptions, I can easily construct a system that should both perform better and appeal more to liberals: allow the Social Security trust fund to buy stocks with the same amount of money as might be put in private accounts, holding the assets in the Social Security Trust Fund. That would have the following benefits:

1. It would add at least a couple tenths of a percentage point to the average return through reduced administrative expenses, which is especially beneficial for individuals who by virtue of low wages (and hence low early-career account balances) could pay out their entire returns in expenses for some time unless the expenses were subsidized.
2. The trust fund (unlike individuals) wouldn't especially care about the performance over any particular 30-year period, so it could improve the fairness of the system in a way liberals would like by absorbing fluctuations in realized returns; beneficiaries wouldn't get differential payouts by virtue of choosing to be born at times that put them on the job market in more- or less-favorable stretches.
3. Even sane conservatives should like it (notwithstanding the public ownership of private property) because those super-duper returns should allow promised benefits to be paid out without future payroll tax increases, or hey maybe even future tax reductions!

In the end, liberal opposition to Social Security privatization wasn't predicated on the idea that it's a bad thing to have stocks in one's portfolio. I, for one, have a lot of retirement money in stocks! Rather, the actual privatization proposals that were floated were Trojan horses with repeal of the New Deal as the primary goal.


[*] Assuming the assumed distribution of returns is correct, and that the program is set up in such a way that prevents the returns being dissipated by middlefolks or by bad investment choices by individuals, which are big assumptions.

Labels: High Finance, social security

by Ken Houghton

The Avon girls* were passing out St. Derek of Pasta Diving (tm - Scott L) new cologne, Driven,** so I had to visit LG&M Thursday.

Well worth the trip.*** It's nice to see that that messy "Iraq" thing has been solved and we can go back to important work:

[Senator Mitch McConnell]’s “deeply disappointed” the new Democratic-controlled Congress has not tackled the “tough issues,” like Social Security…

Besides their “preoccupation” with the Iraq war, Democrats spend their time dreaming of “taxation, regulation and litigation. It’s in their DNA.”

It's a good thing, as I noted Wednesday, that Jane GaltMegan McArdle assures us that we can ignore anything a politician says; otherwise, I might start thinking that the Republicans are trying to distract us from the war and pay for their exorbitant spending with the Greenspan Committee's payroll tax increase that both (1) was scheduled to pay the Boomer retirements and (2) even now was rather accurate in its demographic projections, and moderately pessimistic about productivity and revenue gains.

Headline Reference should be clear to EOB readers. See here for album picture.


*Phrase used advisedly. While at my age anyone Suzanne's age or younger can fairly be considered a "young woman," these two appeared barely old enough to carry a Trapper-Keeper.

**The cologne was named, one guesses, because it is the answer (along with "He was...") to "How did Derek Jeter get to a ball hit four steps to his right?"

***I have to assume that this

Given rural Kentuckans' well known hatred for Federal entitlement programs, dismantling Social Security is a sure winner for Mitch, but it's still kind of surprising to see a Republican in a border state try to shift the focus from the war to domestic issues...

is a joke (possibly unintentional), since without those Federal entitlement payments, the state of Kentucky would be at least $500MM a year poorer [PDF]. If we assume they are rational, then cutting SocSec and Medicare payments should be the last thing on a Kentuckian's mind.

Labels: baseball, Eat Our Brains, Iraq, LGandM, policy wonk, Politics, social security