Patterson: Obama’s plans for Social Security provide little change, no solutions - East Valley Tribune: Opinion

Patterson: Obama’s plans for Social Security provide little change, no solutions

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Posted: Saturday, July 19, 2008 6:45 pm | Updated: 9:31 pm, Fri Oct 7, 2011.

Barack Obama claims to be the candidate of “change” who would bring fresh approaches to our vexing problems. Nowhere would this be more welcome than with Social Security, a program which grants meager returns to its beneficiaries yet faces financial insolvency well within the lifetime of current workers.

Yet when addressing one of the great challenges of our time, he appears to regress into a comfort zone of the left: tax the rich.

Obama’s campaign started on a more promising note. The candidate declared that he was willing to embrace major reform and that he was open to all options. He retained advisers who were considered informed and balanced on this topic.

But Obama’s base bit back at him for going even that far. The lefty blogs exploded. Paul Krugman, in The New York Times, agreed with progressives who were “outraged” that Obama even dared to suggest that Social Security, the “crown jewel of the New Deal,” needed reform.

So the campaign message changed. Obama began to distance himself from ideas like raising the retirement age or indexing benefits to income. Personal retirement accounts were out of the question. Instead, the candidate began to advocate lifting the cap on payroll taxes, which is currently $97,500. When asked point blank on “Meet the Press” if options other than raising taxes would even be on the table in his administration, he said he would “listen” to other options, but that he would be “pushing forward” only the elimination of the income cap on taxes.

Upon further consideration, the campaign has now developed a plan which would remove the income cap, but would provide an exemption for incomes between $100,000 and $250,000. Politically, it’s sheer genius to “rescue” Social Security by hitting up only those earning more than $250,000. But there’s a fatal flaw. The plan simply doesn’t work to assure Social Security’s long-term solvency.

Andrew Biggs of the American Enterprise Institute used the same computer model used by the General Accounting Office in doing Social Security analysis to estimate the long-term effects of the Obama proposal. He found that, based on standard actuarial assumptions, by the 2030s the cash deficit in Social Security would be reduced by only one-fifth. Annual deficits would still exceed $150 billion.

Social Security’s own actuaries recently calculated that even if all incomes, without an exemption, were subject to the tax, after 75 years operating deficits would only be reduced by one quarter. Even with higher taxes, the system would still not have enough workers to fully fund future beneficiaries.

But it’s worse than it may seem from these projections. Tax rates under the Obama plan, which includes allowing the “Bush tax cuts” to expire, will approach 60 percent for the top earners. These are levels which sharply discourage productivity and stimulate tax avoidance. The Congressional Budget Office recently warned that trying to solve the entitlements problem with higher taxes alone would “significantly reduce economic activity and create serious problems with tax avoidance and tax evasion.”

There’s another problem. Social Security taxes have been raised many times over the years to shore up the program’s finances. It’s not exactly a new idea. In every case, Washington politicians have used the revenues generated to support general fund spending. No “trust fund” has ever been funded for future beneficiaries, as would be required in a real retirement plan. There’s scant evidence that politicians have lost their taste for extravagant spending or that Obama’s tax-the-rich plan revenues would actually be set aside to fund Social Security benefits.

Obama seems content to tinker at the margins with a system plagued with fundamental design flaws. The problem isn’t that payments into the system are too low. The real problem is that Social Security isn’t a retirement system at all but a transfer payment scheme which taxes some citizens to pay benefits to others. Like a Ponzi scheme, the ability to make payouts to future players is in doubt. Obama may shun personal accounts, but he has yet to devise another way for Americans to pass on to future generations a retirement system that is sustainable and secure.

Rhetoric about change is cheap. We need the real thing.

East Valley resident Tom Patterson (pattersontomc@cox.net) is a retired physician and former state senator.

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