Ramesh Ponnuru raises this question: If conservatives could implement their favorite Social Security remedies, such as the progressive indexing Pres. Bush endorsed in 2005, the affluent will see lower benefits while their taxes remain the same. If liberals get their favorite remedies, such as abolishing the upper limit on income subject to the payroll tax, which Sen. Obama has cautiously endorsed, the rich will pay higher taxes and receive the same benefits. Either way, Social Security becomes a worse deal for the upper quintile. If “a benefit cut would make rich people stop supporting Social Security,” he asks, “why wouldn’t a tax increase have the same effect? Is the theory that rich people can’t do math?”
There are two questions. First, why should it matter to liberals whether Social Security becomes a worse deal for the rich in the one way or the other? The rule here is, “Not one step backward.” The lesson of the 2005 liberal victory on Social Security is that they have no interest in the question raised by Mickey Kaus at the time: “Universality is extremely expensive,” he said. Devoting a large portion of our GDP to mailing “Social Security checks to rich and poor alike” can’t possibly be “the highest and best use” of it. Such arguments are of no interest whatsoever to liberals who have spent decades wresting GDP points away from the private sector for the public sector to use. Any “reforms” of the welfare state that re-privatize those points, or lead in any direction but the acquisition of additional GDP points by the public sector, are non-starters.
Secondly, why should liberals believe the rich will continue to support Social Security if it becomes a worse deal for them because of tax increases, but threaten to start looking for exit doors if it becomes a worse deal because of benefit cuts? The short answer is, yes, liberals do think the rich can’t add. The longer answer is, why should they think differently? Social Security has been a bad deal for affluent Americans for 72 years, but the defense and steady expansion of the program has never been any sort of political liability for liberals. Our social insurance system has flourished, politically, by the simple expedient of marrying conspicuous benefits to unobtrusive taxes. What incentive do liberals have to abandon a winning formula? Until 1993, the portion of the payroll tax devoted to Medicare was capped, as the larger Social Security portion still is. I don’t remember any outcry when that cap was lifted.
Just because liberals never have paid a political price for Social Security taxes doesn’t mean they never will, however. Abolishing the Social Security Wage Base would be a huge tax increase – a 12.4% surcharge on all income over $100,000. It would affect one in every six households. It would, additionally, be quite awkward, given that the liberal party line on entitlements is that Social Security is fundamentally sound, and entitlement reform really means health care cost controls to bail out Medicare and Medicaid. That’s a big tax increase to fix what we’ve been assured is a very small problem. If conservatives can’t turn such contradictions into a teaching moment, we deserve a long walk in the wilderness.