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By Josh Marshall
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Posted: 11/02/07 07:33 PM [ET] |
As you may know, senator and presidential candidate Barack Obama (D-Ill.) has proposed significantly raising if not lifting the cap on Social Security payroll taxes, which now stop being assessed just under $100,000 in annual income. Most progressives argue that this isn’t necessary at present and raising the issue only buys into the bogus right-wing argument that Social Security faces some looming fiscal crisis, which it doesn’t. But I think it’s more than that. Raising the cap today is not just unnecessary and inadvisable for political reasons — it’s actually just plain old bad policy.
We need to remember that now and for at least a decade into the future Social Security is actually subsidizing the rest of the federal budget. The program brings in much more than it pays out. As we all remember from the voluble debates two years ago, the surplus is being used to buy U.S. government bonds that go into the Trust Fund. After current revenues dip under Social Security’s present obligations, that socked-away money will keep the program solvent at least until the middle of the present century, and quite possibly much longer.
We’ve been doing that for about a quarter of a century.
The problem on the political side of the equation is that the enemies of Social Security have spent a couple decades arguing that the Trust Fund doesn’t exist or that it is simply a bookkeeping device with no true financial meaning. If that’s true, it means that American workers have spent the last 25 years using their payroll taxes to subsidize general revenues and make it easier to float big tax cuts for upper-income earners without getting anything in return.
If we start pumping a lot more money into Social Security coffers now it will by definition go into more government bonds, which is another way of saying that it will go toward funding our current deficit spending. In fact it will enable more deficit spending and probably more upper-income tax cuts because it will make the consequences of both easier to hide.
If we want to push the buffer of the Trust Fund further out onto the horizon, then fiddle with payroll taxes when Social Security actually needs to start dipping into Trust Fund. Like, in a decade or so. I see no reason why this approach doesn’t work just as nicely then as it would now.
As Paul Krugman noted in an interview I did with him several weeks ago, the window of time we had to seriously pare down the national debt to prepare for the retirement of the baby boomers is close to over. Still, though, our best way of ensuring the future health of Social Security is to stop running up the national debt now. So I’m very reluctant to put more payroll taxes in the pot while we’re still running big deficits because of the Bush tax cuts. The money will just go to subsidizing that bad fiscal policy.
If there is any sense in which the Trust Fund is not real, it is that it must be paid back from general revenues. And that will only be harder the more other debt we’re running up. So rather than solving the problem, I think we’re actually enabling it.
The second problem is that we need a national agreement or consensus that the Trust Fund is real, that it will be honored, and have the debate about the future of the program on that basis. Otherwise, we’re still risking getting played in the same bait-and-switch privatizers have been trying to pull for years — using regressive payroll taxes to fund current government spending and then telling future recipients that that money has disappeared and thus Social Security has to be phased out altogether.
Lifting the payroll tax cap while Social Security is still running a big surplus not only solves a problem that doesn’t exist, it enables the very policies that put the program in danger.
Marshall is editor of talkingpointsmemo.com.
His column appears in The Hill each week.
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