November 19, 2007
Reforming Social Security
In my new column for the Financial Times, I try to restate the case for reforming Social Security:
Barack Obama has upset a lot of Democrats by bringing social security back into presidential politics. Paul Krugman of The New York Times is leading the charge. In Mr Krugman’s view, following the administration’s clumsy and aborted effort to reform the system – Democrats would say destroy it – leaving well alone makes best political sense. Mr Obama, sounding like a fiscal conservative, warns that retiring baby boomers are pushing the programme into the red and something must be done. He is, says Mr Krugman, being played for a fool.
Mr Obama’s fix, other things equal, ought to appeal to Democrats. He wants to raise or even abolish the upper earnings limit for the social security tax, at present just under $100,000. This would add six percentage points to the top marginal tax rate, even before you add in the promised unwinding of the Bush administration’s tax cuts. In a televised Democratic candidates debate, Hillary Clinton distanced herself from this “trillion dollar” tax increase on the “middle class”. Mr Obama underlined his point by saying that only the richest 7 per cent of taxpayers would be affected, and that is not the middle class.
We will see how this plays out. Democrats who would generally be in favour of unwinding the Bush tax cuts, abolishing the earnings ceiling on the social security tax and finding a few other ways to raise taxes on the rich, are mainly concerned to keep reform of social security off the agenda. It does not need fixing, they say, it is not broken. Any deviation from that gives Republicans an opening to renew their assault on one of America’s finest social-policy achievements. Why go there?
You can read the whole column here.
Obama appears foolish indeed! Peter Orzag, Congressional Budget Office official states that the Social Security program is fine until about year 2040; not so with Medicare, which needs some attention. But as you mention, cancelling the Bush tax cut and raising the cap on high incomes will go a long way toward salving this future problem.
Posted by: Claude M. | November 20th, 2007 at 12:52 am | Report this commentA fine column. But, please, can we recognize that we ALREADY HAVE a form of privatized retirement accounts, a form that could be readily expanded to great benefit: IRAs and Roth IRAs. I do not understand why expansion of these gets so little attention, especially from Democrats.
Suppose we did these three things:
– Expand the amount that can be put in them. The current limits are too low for these plans to be a key part of retirement planning for any middle-class person. Why are the limits so much lower than for 401k plans?
– Remove the deductibility limits. Not sure why they exist at all, but what conceivable reason is there for a limit on contributions to Roth IRAs? It’s already after-tax money at that point, isn’t it?
– Give businesses the option of contributing directly to our IRA plans rather than setting up their own 401k programs (though they could still have those plans if they wish). Many small businesses might jump at the chance to offer retirement benefits if they had a low-cost alternative to setting up and administering a 401k.
If we did these things, then we could have a coherent retirement vision for Americans. “Social Security keeps us all out of poverty; your IRA plans enable you to fulfill your dreams for retirement.” The first is our social contract to live in a good society; the second is for your own drive to carry you as far as you are able.
And this would really promote “ownership for all” – because instead of your retirement being wrapped up in a company plan, the money would be yours from the beginning.
Posted by: John N | November 20th, 2007 at 4:06 am | Report this commentWhat do we get 3percentage or more after taxes
Posted by: SHerri L. Floyd | December 17th, 2007 at 1:57 am | Report this comment