A Fork in the Road.

“All I know is just what I read in the papers, and that’s an alibi for my ignorance.”—Will Rogers.

One sign of our political paralysis/polarization shows up in the reliance on special bi-partisan commissions to deal with troubling issues.  The 9/11 Commission did an excellent (if imperfect) job.  The Simpson-Bowles Commission[1] also did an excellent, if imperfect, job.  The work of the 9/11 Commission requires no explanation.

The Simpson-Bowles Commission sought to address the growing problems with federal spending, taxation, and deficits.  Basically, Social Security, Medicare/Medicaid, and Defense each consume about 22 percent on federal spending.  So, two-thirds of the budget goes to old people and to psychological Viagra.  Even though reforms in 1983 cut benefits by 25 percent, the dynamics remain unsupportable.  Simpson-Bowles made a series of recommendations to address the rising cost of entitlements.  The Commission recommended a combination of tax reforms to enhance revenue with spending cuts.[2]  These recommendations went nowhere, for reasons that are equally disgraceful to both parties.   President Obama returned to the need for cuts in his failed effort to strike a budget deal with the Republicans.

Currently, the trust fund for Social Security is projected to run dry in 2034.[3]  After that the system will have to rely on only withholding taxes from current workers.  That, in turn, will mean that payments will fall to 79 percent of the promised level.  One alternative would be to increase withholding taxes by something like 25 percent.  Another alternative would be to reduce benefits by limiting the cost-of-living adjustments.  A third would be to increase benefits.  Some argue for a 10 percent raise for recipients, others for 100 percent of their own benefit plus 75 percent of their deceased partner’s benefits.  A fourth alternative would be to give care-givers and widows who left the work force an equivalent pay for their loss of Social Security income (although they paid no withholding tax during that period).

The current presidential campaign has shifted the debate on this issue.  The white populist revolts led by Donald Trump and Bernie Sanders have racked the Republican and Democratic parties alike.  Established party positions have had to shift in response.  According to Nancy Altman, “the real question is whether you expand Social Security across the board, so middle-class workers get an increase,…Then you can argue about how big to make the increase.”

Democrats have endorsed expanding and “modernizing” Social Security.  Three years ago “Progressives” began looking for a new issue to galvanize the Democratic electorate after the end of Barack Obama’s presidency.  [NB: So, the Democratic agenda is driven by the search for new ways to extend the role of government?  Rather than,…?]  First, Bernie Sanders took up the cause; then Hillary Clinton joined in.  Characteristically, realizing that she would have to veer to the center after winning the nomination, she took the low road: expanded benefits for widows and widowers and for those who lost benefits because they served as caregivers.

Still, how to pay for the expanded benefits?  One answer would be to raise the cap on taxable income above the current $118,000.  Another answer advanced by Democrats would be to “privatize” Social Security funds by investing them in equities.  The Bush II administration tried this on without success.  Now it may become a Democratic policy.

What can we afford?

[1] See: https://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform

[2] See: https://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform#Final_plan

[3] Mark Miller, “Social Security Expansion Gains Support in Washington,” NYT, 16 July 2016.

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