Tuesday, January 03, 2012

President Obama, Social Security and the payroll tax cut

Robert Kuttner (Social Security: Secure With Obama? Huffington Post 01/01/2012) favors the substitution of general fund revenues for Social Security taxes, which is what is being done to replace the revenue lost to Social Security through Obama's payroll tax holiday of 2011, that he just got extended by two months. There will be a new debate over it in February.

This is one place that abstract thinking about potential possibilities needs to give way to the real existing situation in the politics of Social Security. Kuttner describes well two main arguments against the payroll tax reduction:

First, it will never be a good time politically for either party to vote to raise Social Security taxes on working people, even once the economy is back in recovery. So the trust funds will be permanently reliant on subsidy from general government revenues. That, say critics, will make it seem less solvent, and less like an earned benefit, further softening Social Security up for privatization.

Second, if we are going to increase the deficit to stimulate the economy, tax cuts -- even on regressive payroll taxes -- are the weakest form of economic stimulus. Dollar for dollar, public investment is far more effective. So, even though the millionaire battle is a good one, Democrats are once again playing on Republican turf, where the issue is defined as who is the more reliable defender of tax cuts.
And he responds to those concerns this way:

In fact, there is no good reason why Social Security has to be funded entirely by payroll taxes. No less than Franklin Roosevelt, in the program's original design, projected that as more and more workers became eligible, general government revenue would have to be part of its financing. And the payroll tax, capped at $107,000 of income and levied on the first dollar of earnings with no deductions or exemptions, is one of our most regressive taxes. Subsidizing Social Security with general revenue is good policy. As long as the system is substantially financed by payroll taxes, the benefit still feels earned.

The devil, of course, is in the details. Making up the Social Security gap with a tax on millionaires is a double win. It makes the tax system more progressive, and it starkly poses alternatives in a way that plays to progressive strengths.
As a matter of pure progressive taxation, yes, it would be ideal if we had a progressive income tax that funded Social Security and pretty much everything else on which the federal government spends its money.

But liberals and progressives and been battling for the last three decades against the Republican insistence on making the federal tax system more and more regressive. And in the gubment-is-bad attitude that the Republicans promote - and too often the Democrats, also! - one of the political firewalls around Social Security has been that people have a sense that "I'm paying into this and I've earned the benefits." In the current environment in which opponents of Social Security make fake arguments about the system running out of money, the payroll tax reduction does strengthen that argument's credibility, as Kuttner's own statement of the objection says. He underestimates the significance of that argument.

Even worse, though, is that his article fails to answer the question its title poses: is Social Security secure with Obama? Because Kuttner doesn't mention in his argument that Obama has proposed cutting Social Security and Medicare benefits. Obama is not fighting to preserve Social Security, he's fighting to cut it back.

Given that reality, supporters of Social Security have every reason to doubt that the payroll tax holiday approach to tax relief is a good idea.

Yes, it's a political victory for Obama that he made the Republicans look bad on opposing tax relief for working people. But he's not defending Social Security. And, as Kuttner rightly points out, he's not even doing a decent job of defending the political victory that the tax fight does represent, limited though it may be. Because Obama and his team can't seem to restrain from pepper-spraying their own useful messages:

At the same time, Obama still has a worrisome tendency to position himself above partisan politics and to blame something called "Congress" for legislative blockage rather than blaming the source of the blockage, namely Republican obstruction and extremism. According to the deputy press secretary Joshua Earnest, quoted in the lead political story in Sunday's New York Times, Obama's election year strategy will be to attack "the image of a gridlocked, dysfunctional Congress and a president who is leaving no stone unturned to find solutions to the difficult financial challenges and economic challenges facing the country."

Say what? Who made Congress dysfunctional and gridlocked? Can't Obama savor a partisan victory in which he just helped Republicans marginalize themselves on a popular issue like payroll tax relief without reverting to a posture that accords his own party and the Republican opposition equal blame? [my emphasis]
The last three years of evidence would suggest that, no he can't. And the core of his post-partisan aspirations is the notion of a Grand Bargain: beginning the phaseout of Social Security and Medicare in exchange for the Republicans agreeing to a symbolic increase of taxes for the wealthy which will be quickly rolled back, while Social Security and Medicare are more likely to be permanent casualties.

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