SS round 3, Bush v. Dorgan

Topics: Welfare
30 Apr 2005

From: Ervan Darnell

Thursday, Bush, possibly recognizing the low polling on his SS reform plan compromised with the Dems by endorsing "progressive indexing", i.e. keeping wage growth inflators for lower income people but using CPI inflators for middle and upper income people. Clive, in a previous posting on this group, proposed something similar for instance. I say this is a compromise because there is nothing in this about privatization; it's just a tax question.

The Democratic response was given by Dorgan "this President has a plan to [...] cut benefits for a whole lot of social security recipients. It's something that doesn't add up and something we are not going to embrace." [1]

This is more Democratic double talk. Cut compared to what? Compared to their fantasy of continuing the current bankrupt system and assuming it can go on forever? Yes, that's the comparison point. Compared to current "benefits" (I cringe at describing tax confiscation as a "benefit") it doesn't cut benefits but rather keeps them at least the same (though not sufficient to completely close the SS deficit). The alternative the Dems proposed? The one they are going to "embrace"? Well, none. "Benefits", in the real sense of effective yield on payroll taxes, are going to decrease relative to Democratic fantasy no matter what. They are blaming Bush for acknowledging the obvious.

Having said that, all 3 choices offered so far are really quite similar in the short run:
1) Lower the indexing for middle and upper income earners, i.e. make the payroll tax more progressive.
2) Raise the SS tax cap, but not the benefits, i.e. make the payroll tax more progressive.
3) Shift the burden to income taxes, which are already more progressive than payroll taxes.

The interesting thing, as I said before, is that the Dems flatly refused (3) and now get to argue against (1). I think I actually prefer (1) simply because it doesn't tap new tax sources and will in the long run increase taxes the least, even though it leaves the government in control of all the money.

[1] 4/29 Newshour w/ Jim Lehrer, transcribed by me from:
Ervan Darnell

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