November 9, 2010
There is a growing split among liberals about how to handle the debate over Social Security.
A leading liberal budget analyst joined with a prominent conservative to call on Congress to move quickly to resolve the long-term deficit facing Social Security, and to include higher taxes in the solution.
Charles Blahous, an architect of President George W. Bush’s short-lived plan to privatize Social Security, and Robert Greenstein, executive director of the liberal-leaning Center for Budget and Policy Priorities, concluded in a joint report that the government retirement program faces a “significant shortfall, which policymakers would be better off addressing sooner rather than later.”
More significantly, the two called for a solution requiring a combination of reductions in scheduled benefits coupled with tax increases, which was roughly the compromise reached by the bipartisan Greenspan Commission and passed by Congress in 1983 – the last time the government addressed Social Security financing.
Tax increases are anathema to current Republican leaders, while most Democrats staunchly oppose benefit cuts and privatization schemes like the one contained in the Bush plan. The issue helped Democrats seize control of Congress in 2006.
While this latest Social Security report, financed by the Pew Charitable Trusts, offers little new information about the program’s finances, its issuance just a few weeks before President Obama’s bipartisan fiscal commission reports to Congress marks another crack in the united front on Social Security among Democratic-oriented analysts. Their differences center on the best way to handle the coming debate over entitlement programs.
On the one side are traditional liberals, who oppose any reduction in Social Security, which remains the mainstay of retirement income for most seniors. Their greatest fear is that reducing benefits for high-income seniors – a potential compromise approach to cutting benefits – would erode political support for Social Security if it were to evolve to an income transfer program mainly benefiting low- and moderate-income people.
“Programs for the poor are poor programs,” said Greg Anrig, vice president for policy and programs at the Century Foundation. “Once you change the principle that the benefit isn’t protected against inflation for everybody, there is going to be strong pressure for reducing it for everyone down the ladder.”
On the other side are centrist Democrats, who argue that drawing a line in the sand over entitlement programs aimed largely at the old will limit the government’s ability to do anything else and exacerbate public opposition to government programs among the working-age population.
“Arguing that these programs need to be transformed goes against the grain of traditional progressive thinking,” said Isabel Sawhill, head of the Budgeting for National Priorities project at the Brookings Institution and an advocate for women’s and children’s programs. Writing in the journal Democracy, she argues that “this transformation can be undertaken in a way that strengthens progressive values, paves the way for a restoration of faith in government, shores up the social safety net for the poor and working class, and frees up resources with which to tackle new problems.”
Sawhill’s main proposals were to index benefits so seniors with income in the top 20 percent (about $100,000 in 2020) would receive lower or no cost-of-living adjustments. She also called for gradually raising the retirement age to 70, which liberals oppose because it discriminates against manual laborers who are less able to work in old age, and against minorities, who have shorter life expectancies.
She argued that reducing adjustments for upper-middle-class seniors would narrow the gap in Social Security payments between rich and poor. Currently, those who earned more during their working lives get higher benefits. Greater indexing “would not only make benefits more progressive but also increase public confidence in the system and its ability to provide for all those who really need it,” Sawhill wrote.
Social Security benefits are already fairly progressive. The checks sent to low- and moderate-income seniors provide a much higher percentage of their working-age income than do the checks sent to higher income workers.
Greenstein clearly falls into the Sawhill camp. The Pew-funded report echoes the conventional view that Social Security is solvent until 2037, which would seem to preclude the need for immediate action. But “the longer a solution is postponed, the more difficult it will be to restore solvency without imposing large, sudden reductions in benefits or increases in taxes,” the report said. “If changes were begun earlier, the eventual changes required would be nearly as large in aggregate, but they could be implemented in a series of small steps.”
That was the approach taken by the Greenspan commission, which included future Republican presidential candidate Robert Dole and the late Democratic senator Daniel Patrick Moynihan of New York. The bill was shepherded through the Democratically controlled House by the late Rep. Claude Pepper of Florida, one of Social Security’s greatest champions. It increased the payroll tax from 5.4 to 6.2 percent, raised the cap on wages subject to the tax and indexed it for inflation, and gradually increased the retirement age to 67, which doesn’t go into full effect until later this decade.
One goal of the Greenspan commission was to levy the payroll tax on about 90 percent of all wages. Because of a growing inequality in income distribution, it would take raising the level of wages subject to the tax – currently at $106,800 – to about $186,000. Doing that and eliminating the wage cap entirely for employer contributions would eliminate the entire 75-year shortfall in Social Security financing, Anrig argued in a rejoinder to Sawhill’s Democracy article.
The Pew report, entitled “Social Security Shortfall Warrants Action Soon,” acknowledges that the nation’s retirement program represents a far smaller problem than Medicare and Medicaid, which are being buried in red ink by skyrocketing health care costs. Citing Congressional Budget Office numbers, the report notes that Social Security payments are slated to rise from the current 4.8 percent of gross domestic product to 6.2 percent of GDP in the mid-2030s and beyond.
Medicare and Medicaid, on the other hand, consume the same level of resources now – about 5 percent of GDP – but are predicted to double to 10 percent in the 2030s and 13 percent by 2050. While “it would be next to impossible . . . to put the budget on a sound course without tackling all of its major components – health care spending, Social Security, other spending and revenues,” Blahous and Greenstein wrote, “projections show that over the long term, rising health care costs are the largest factor.”