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“Love Me or Leave Me.”
The title of that old hit movie could be attached to that old hit government program – Social Security.
Most Democrats, who invented it, love it. Some Republicans, conflicted about it, would leave it and replace it with individual investing. Both understand that, well past the usual retirement age, it needs updating.
Democrats see it as a major federal program on which tens of millions depend. In their view, touching any key aspect of the single most costly federal program could be politically fatal. Republicans, believing that increasing taxes is never a good idea, even to allow it to survive, would replace it.
Democrats and Republicans agree that it will run out of money to maintain benefits; Democrats want to raise taxes and Republicans want to cut benefits.
For Democrats, Social Security is the most successful and enduring part of President Franklin D. Roosevelt’s New Deal. It assures older Americans of at least some support in meeting their living costs when they retire.
Originally, it was not expected to grow to its current size. Though all workers and employers would contribute to it, there would be relatively few beneficiaries. The retirement age was set at 65, higher than normal life expectancy in the 1930s when it began. The population would grow and the accumulated funds and taxes on new workers would cover the cost.
But medical science extended the lifespan enough to produce many recipients. The aging population began to reveal that contributing workers would decrease while retirees increased. It became evident that Social Security would not support itself out of the payroll tax. Politicians and voters kept avoiding the inevitable shortfall, but it kept coming.
Making the issue more obvious resulted from rolling it into the federal budget process rather than keeping it apart from other programs. At the time, though no money moved, it made the deficit budget appear to be balanced. Now, it makes the deficit even worse.
Here’s how the federal budget looks. More than half of outlays go to “mandatory” programs like Social Security, Medicare and Medicaid. The rest goes to “discretionary” programs like defense and all other programs. Income comes mainly from individual and corporate income taxes plus payroll taxes. In coming years, payroll taxes and reserves won’t cover mandatory programs.
Only two tools are available to fix the mismatch – raise taxes or cut spending – as they apply to mandatory programs. They must be used independently or in a mix.
The essence of Democratic proposals is that payroll taxes should be raised to fund the mandatory programs. The most obvious method would be to lift the cap on earnings subject to the payroll tax, making it possible to collect much more from the wealthiest people. Beyond that increase, income taxes on the rich should be increased in ways that their schemes cannot dodge.
Not only would those increases solve the cost-revenue mismatch, but they could support expansion of Social Security. The country would admit what is already becoming true: Social Security is a national retirement plan. Private employers would continue with their own plans, encouraged by the tax laws and to be used to recruit employees.
But financing Social Security by income taxes would virtually ensure that it would become as permanent a part of federal spending as defense. As in other countries with similar programs, the tax burden could be expected to be heavier.
That’s what worries the GOP. Money that goes to taxes is money that is denied to profits and investment. That shift could change the American economy. Republican leaders seek ways to reduce payouts by raising the retirement age. They also want older people to invest in the private market and use returns there to replace government payments.
In effect, under the Republican approach, older Americans will work longer and take on more risk, though many would avoid higher taxes needed to keep traditional Social Security solvent. Some Republicans dislike big government, so shifting retirement from a government program to encouraging private investment would meet their concerns.
Congress and the country face a difficult decision on Social Security and other mandatory programs. Until now, Congress has avoided any serious attempt to resolve the issue. Appointing an expert commission, as some propose, would just be kicking the can down the road.
While the decision is difficult, the choice is not. Voters will ultimately have to decide between bigger government to maintain and possibly expand Social Security or giving individuals more of a required role in managing their own retirements.
In a broader sense, this is the essence of the national political debate between the two parties and in a divided electorate. Is there a common need justifying a greater role for government or is government an uncontrolled force that seeks to deprive us of personal choice?
It’s a debate worth having and one we must have.
