Candidates Diverge

by hilzoy

This is a very puzzling article. Here's the lede:

"Sens. Barack Obama and John McCain are both proposing dramatic changes to Social Security, taking on the financially fragile "third rail of American politics" that Congress and recent presidents have been unable to repair."

Here's Matt Yglesias' comment on it:

"This is a great lead except for the fact that Obama is not proposing dramatic changes to Social Security. Well, there's also the fact that the projected deficits for Social Security are smaller and more manageable than those projected for the other entitlement programs (Medicare and Medicaid) and that the non-entitlement portion of the budget is running a huge deficit right now. Under the circumstances, Social Security would seem to be the least financial fragile aspect of the federal budget. And one more thing -- to say "that Congress and recent presidents have been unable to repair" Social Security implies that recent presidents and Congresses have been trying to repair it when, in fact, George W. Bush's Social Security proposals were, like John McCain's, aimed at phasing the program out.

I think I'm afraid to read past the lede of that particular story."

I, however, am willing to rush in where even Matt fears to tread:

The story continues:

"McCain's aides said he favors a bipartisan approach and is open to working with Congress on finding a solution to the long-term solvency of the New Deal-era program, indicating he could support an array of ideas such as raising the retirement age, reducing scheduled increases in benefits and allowing younger workers to put money they currently pay for Social Security taxes into personal savings accounts. President Bush floated a similar idea for private accounts in 2005, but polls found it had little public support.

Obama has been even more specific. The Democrat from Illinois has proposed raising taxes on upper-income Americans to address projected shortfalls in Social Security, but his plan has been greeted with skepticism, even from some in his own party.

Under current law, income up to $102,000 a year is taxed for Social Security, and Obama would create a "doughnut hole" by not imposing new Social Security taxes on income between $102,000 and $250,000. His aides said income exceeding $250,000 would be taxed at a rate of 2 percent to 4 percent, rather than the 6 percent tax that people pay toward Social Security on income below the $102,000 cutoff, which is matched by their employer's paying a 6 percent tax. Employers would probably pay an additional tax from 2 percent to 4 percent.

Experts predict that proposal would make up less than half of the $4.3 trillion shortfall Social Security is expected to face over the next 75 years."

There follows a lengthy discussion of Obama's proposal. How much would it bring in? Does Social Security even need fixing? Etc. What's striking is that even though the article's headline is "Candidates Diverge on How to Save Social Security", only one candidate's proposals are seriously discussed. In addition to the paragraph quoted above, here's the entire discussion of McCain's plans:

McCain supported those accounts in 2005 and has spoken positively about them in his campaign, but aides emphasize that he would seek consensus on the issue.

"John McCain is committed to honoring the promise of Social Security and believes that his bipartisan record will serve him well as he works across the aisle to ensure the long-term solvency of the program," said Tucker Bounds, a McCain spokesman.

Aides said McCain would not support a tax increase to address the solvency of the program, but they did not give further details.

Damien LaVera, a spokesman for the Democratic National Committee, described McCain's plan as a "decision to repackage President Bush's failed and flawed plan to privatize Social Security."

Maya MacGuineas, a budget expert at the New America Foundation who advised McCain on Social Security in 2000, said of his proposal: "In terms of details, there is so much to be filled in.""

Not very substantive, is it? And the reason is obvious: McCain does not, in fact, have anything worth calling a "plan" for fixing Social Security.

Personally, I don't think that fixing Social Security is a particularly urgent problem. But McCain seems to. Moreover, yesterday, McCain promised (pdf) to balance the budget by the end of his first term. This promise met with considerable skepticism: McCain has proposed a whole bunch of costly tax cuts and spending proposals, and next to nothing about how he would pay for them.

One of the few things he did say (pdf), however, was that "In the long-term, the only way to keep the budget balanced is successful reform of the large spending pressures in Social Security, Medicare, and Medicaid." (p. 4). One might have hoped, therefore, that he would have said something about what, exactly, he intends to do to "reform" Social Security (or, for that matter, Medicare or Medicaid), and how this will help to balance the budget.

No such luck. Here is his entire discussion of the Social Security:

"John McCain will fight to save the future of Social Security, and he believes that we may meet our obligations to the retirees of today and the future without raising taxes. John McCain supports supplementing the current Social Security system with personal accounts – but not as a substitute for addressing benefit promises that cannot be kept. John McCain will reach across the aisle to address these challenges, but if the Democrats do not act, he will. No problem is in more need of honesty than the looming financial challenges of entitlement programs. Americans have the right to know the truth and John McCain will not leave office without fixing the problems that threatens our future prosperity and power." (p. 5)

There are, basically, two ways to put Social Security on a firmer financial footing, supposing one thinks that needs to be done. One is to raise taxes; the other is to cut benefits. (One might also cut administrative costs, but these are already extremely low.) In the passage cited above, McCain says he does not think he will need to raise taxes. That leaves benefit cuts.

By my calculations, McCain would need to cut benefits by 95% in order to balance the budget -- and my assumptions were pretty conservative. (I did not count programs that I couldn't cost out as having any cost at all, and restricted myself to the big-ticket promises that leapt to mind, for instance. That means, for instance, that I treated McCain's promise to get new modern weapons systems as if it either didn't exist or could be met for free.)

I would be more than happy to concede that I am wrong: that McCain has plans for raising revenues or cutting spending that I haven't taken into account. But in order to do that, I'd have to see some concrete proposals from him. And the truth is: there aren't any.

I would also be more than happy to concede that McCain's promises don't commit him to cutting Social Security benefits by 95%. Again, though, I'd have to see some concrete proposal about what he does intend to do. And there is no such proposal.

And that, in the final analysis, is why the Post article looks as odd as it does. One candidate has proposed something quite specific: taxing income over $250,000 a year at 2-4%. The Post therefore asks various experts what they think of this, and gets a variety of opinions. Another candidate -- oddly enough, the one who has put a lot more weight on "reforming" Social Security -- offers nothing more than the claim that he will "fight to save Social Security", that he will "reach across the aisle", and that he will "act".

Honestly: what's to discuss? I'm reminded of Richard Mitchell, skewering vague bureaucratic language:

"Imagine that you are chatting with Marco Polo, just back from Cathay, and you're burning to hear all about those strange people in a distant land. You ask what wonderful things he saw there; he tells you "marvels." You ask what the people wear; he tells you "attire." What do they grow; "crops." (...) Now you know all about Cathay."

Imagine that you are talking to John McCain, and you're burning to hear about his plan to save Social Security. What does it involve? "Action." How will he save Social Security? By "reaching across the aisle". What will he do to save it? "John McCain will fight". Now you know all about John McCain's plan to fix Social Security.

Comments

[Model 62]

Looks like John McCain has decided not to negotiate with himself, just like that other guy.

[Alex]

Step 1: "Reach across the aisle!"
Step 2: ???
Step 3: Profit!

[Jake]

Yay, more of the "ponies!" approach to economics from the McCain campaign.

[Brick Oven Bill]

Wages in Honduras and Guatemala are $3/day. Food stamps alone in the US are around $10/day. Public benefits are simply impossible without shoot-to-kill orders on the border. The flow of people will accelerate as the world economy deteriorates.

We spend $300 million daily in Iraq, which is a waste. But we make $8 billion in unfunded future promises daily to the people who already live here, or over 25x the daily expenditure in Iraq. We’ll never make good on these promises. I think we may be witnessing an engineered break-down of our current societal model.

A good reason to grow a garden.

[von]

One candidate has proposed something quite specific: taxing income over $250,000 a year at 2-4%.

Actually, 4-8% (you need to count both the employee and employer contributions under the current version of Obama's plan) (I say "current version" because Obama's plan has been a moving target).

[Davebo]

Actually, 4-8% (you need to count both the employee and employer contributions under the current version of Obama's plan) (I say "current version" because Obama's plan has been a moving target).

But Von, 2,000 economists endorsed Obama's plan in 1963.

[Davis X. Machina]

"Candidates Diverge on How to Save Social Security",

Is this a subtle nod to the "Candidates Differ on Shape of Earth" internet tradition?

[KCinDC]

Is a moving target worse than a nonexistent target?

[DrDave]

Hilzoy:

Are you challenging John McCain's integrity?

Seriously, though, the only question is whether or not the American voter will be intelligent enough to see what their choice is this year. Because there is no choice.

[Jesurgislac]

DrDave: Seriously, though, the only question is whether or not the American voter

Actually, the only question is whether the Republicans will succeed in rigging the election so that McCain gets into the White House, just as happened in 2000 and 2004 for Bush. As 2006 showed, a landslide against the Republicans can overcome their vote-rigging strategy, but it does take a landslide... and given that many Americans still take as a given that Gore and Kerry lost, I fear that only a landslide victory for Obama will ensure he gets into the White House.

[Nell]

Ah, more magic from the pen of Perry Bacon, Jr., judged just as front-page-worthy by the Post's editors as his laundering of the Obama-Muslim smear in the guise of 'debunking' it.

Walter Pincus is still being buried on A18.

All hail the Weymouth regime.

[von]

But Von, 2,000 economists endorsed Obama's plan in 1963.

That makes perfect sense: many of Obama's economic proposals seem to be about 40 years old.

[von]

Add a ;-) to the end of the above comment at 2:26 p.m.

[Enlightened Layperson]

You're missing the obvious. According to supply-side economics, the lower the taxes, the more revenue. Clearly McCain's tax cuts will generate enough revenue to buy a whole stable of ponies.

[Carleton Wu]

Public benefits are simply impossible without shoot-to-kill orders on the border.

And yet, they exist in the absence of such orders.

Congrats on discovering reductio ad absurdum. If you publish now, maybe you'll beat that Pythagoras guy and get precedence!

[Bruce Webb]

Hilzoy I have to congratulate you on an excellent piece. But I have to depart from you on one point:

"There are, basically, two ways to put Social Security on a firmer financial footing, supposing one thinks that needs to be done. One is to raise taxes; the other is to cut benefits."

It turns out that neither proposition actually works to put Social Security on a firmer footing, not when you look at the system as a long term totality. There are ways you could restructure Social Security so that tax increases or benefit cuts would add to Long Term Actuarial Balance but under the current finance structure all you would be doing by either is accelerating the flow through of surplus dollars to the General Fund while swelling the supply of Special Treasuries and so the obligation to pay back extra principle and interest in the future.

Holding Trust Fund 'assets' in Special Treasuries is not a bad thing in itself, it is a reasonable way of tracking inter-generational borrowing, after all I was in the workforce in 1983 and expect some compensation for all the extra dollars I put in over the 35 years since. But the fact that future taxpayers do in fact 'owe' me doesn't mean that in reality that I 'prefunded' anything.

The interest on the Special Treasuries is real enough but rests on a certain assumption that may or may not be true. That assumption is that the extra borrowing allowed by the current Social Security surplus either lowered the cost of overall federal borrowing or directly financed productivity improvements in a way that justifies a claim on future productivity decades down the road. Well Bushonomics put that tradeoff claim to serious test, instead of using the Social Security surplus in some future looking way instead it was used to pay for the equivalent of the three martini lunch with the subsequent bill simply being passed on to a future generation.

Absent some structure and mechanism that would insure that FICA tax increases actually were put to some use that would make future financing of Social Security easier for future workers such increases simply enable reckless spending in the here and now.

The whole thing sounds counterintuitive, there seems to be no way that cutting costs or increasing revenues near term could cause long range harm, but that is the way it shakes out when you follow the actual dollar.
Angry Bear post XIV: Why benefit cuts and cap increases backfire

[Bruce Webb]

Okay 'twenty five years'.

I was a literature major, you got to give me a little break.

[LFC]

Bruce is right on the money. I'd fight any change to Social Security that increases the surplus it generates because it will simply be consumed by general spending.

Under McCain's definition of "balancing the budget" in 2008, we'd still be sucking up several hundred billions a year in Soc Sec surpluses. That's one enormous fig leaf.

I'd love to see Obama propose pulling Soc Sec and Medicare out of the general budget so that people clearly understand that this year's deficit is about $700 billion.