Jewish World Review May 25, 2005 / 16 Iyar, 5765

Ground in Social Security debate shifting in favor of GOPers

By Jack Kelly

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http://www.JewishWorldReview.com | The contretemps that's developed over the plan offered by Rep. Robert Wexler (D-Fla) to fix Social Security's financial problems suggests to me that President Bush is winning the debate on Social Security reform.

Don't get me wrong. This — like the war on terror — is going to be a long fight. In the short term, I expect the House of Representatives to pass a bill which will be filibustered to death by Democrats in the Senate. But the Democratic "victory" will be Pyrrhic, and the seeds for the ultimate triumph of the president's ideas will be sown.

Social Security's financial woes can be solved only by raising taxes, reducing benefits, or some combination of both.

Currently, the Social Security tax is 12.4 percent of payroll on incomes up to $90,000, half paid by the employer, half by the employee. Wexler would raise that tax by 6 percentage points — 3 each on employers and employees — for workers earning more than $90,000.

Democratic leaders have looked askance at Wexler's plan, mostly because their strategy has been to refuse a plan of their own until the president's has been rejected, partly because they don't want Americans to know their proposed fix involves hefty tax increases.

Wexler's is the first Democratic plan to be introduced in the form of legislation. But Pittsburgh Rep. Mike Doyle has been talking about something similar, applying the payroll tax to all wages, not just the first $90,000.

Both Wexler and Doyle would cap benefits for wealthier wage earners, because if benefits rose along with taxes, the effect on the Social Security deficit would be next to nil.

Doyle's plan would raise more money — but even if neither had deleterious economic effects — neither would come close to closing the Social Security deficit. The Social Security Administration estimates Doyle's plan would only delay from 2018 to 2025 the year in which Social Security goes into the red.

But raising Social Security taxes by the amounts Wexler and Doyle propose would have serious economic repercussions. The Heritage Foundation's Center for Data Analysis estimates that over the first decade, the Wexler plan would reduce GDP by $33 billion a year, on average, and reduce employment by 340,000 jobs a year. The impact would be especially severe on small business owners, who must pay both the employer and employee portions of the tax.

The medicine Bush is proposing tastes sweet by comparison, and it actually would solve the problem.

Democratic leaders may object to the Wexler and Doyle proposals more because they undercut the central argument they've been using against President Bush's proposal for closing the deficit.

Social Security benefits have been rising faster than the cost of living because they are indexed to wages, which have been rising, on average, one percent more a year than prices. The president wants to keep benefit increases linked to wages for low income workers, but to index them to prices for middle and higher income workers.

Democrats are against this because, they say, cutting benefits increases for upper income workers makes Social Security more of a welfare than a social insurance program, and that in the long run this will diminish support for Social Security.

But raising taxes on upper income workers without increasing their benefits also turns Social Security into more of a welfare program. And if you ask wealthier workers whether they would rather pay more in taxes or receive less in benefits, most would prefer the benefit cut.

"Any high earner who is counting on Social Security for a major part of his retirement income probably shouldn't be a high earner," said an accountant at a recent forum in Pittsburgh on Social Security.

Bush proposed personal accounts as a means of cushioning the blow to middle and upper income workers of tax increases or benefit cuts.

Personal accounts are unpopular with Social Security recipients, who would not be affected by them, but who oppose any change that does not put more money in their pockets.

But personal accounts are very popular with younger workers. This is why Bush will win in the end. The longer the Social Security debate goes on, the more the ground shifts in favor of the Republicans.