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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (72531)	2/18/2005 11:13:49 AM
From: Oeconomicus	Read Replies (1) \| Respond to of 89467

Good for them. They are right to oppose any lifting of the cap. Bush erred in suggesting the possibility should be on the table. Tax Cap Fever February 18, 2005; Page A10 online.wsj.com President Bush deserves credit for devoting his prestige to trying to fix a Social Security funding shortfall that some President and Congress will have to deal with sooner or later. But we sure wish he and his Republican colleagues weren't making such a hash of the politics. Consider this week, when everyone knew the big news was going to be Alan Greenspan's Congressional testimony. Few Americans are such recognized authorities on Social Security as the Fed Chairman, who crafted the bipartisan 1983 fixes that gave us the tax and benefit mix we have today. So Mr. Greenspan's endorsement Wednesday of private accounts ought to have been the undiluted Social Security headline of the week. "These accounts, properly constructed and managed, will create ... a sense of increased wealth on the part of middle and lower-income classes of this society, who have had to struggle with very little capital," Mr. Greenspan told a House committee. Mr. Bush could have embraced that argument himself. Instead, somebody decided the President should interfere with that message by giving interviews suggesting his openness to a payroll tax increase to finance any reform. "The one thing I'm not open-minded about is raising the payroll tax rate," he told one newspaper. Asked specifically about raising the cap on the amount of earnings subject to the tax -- currently $90,000 -- Mr. Bush replied he was interested in any "good ideas." And apparently some bad ones too. In December Mr. Bush had declared "we will not raise payroll taxes" as part of Social Security reform. That's admittedly vague, but it's now clear he's added the caveat of "rate," which in Washington's tax-happy culture will be read as meaning he is open to raising the cap. If Mr. Bush wants to dampen support for his plan among Republicans, there is no faster way to do it. We can only speculate that the idea is to put taxes on the table in order to lure the six or so Senate Democrats Mr. Bush will need to pass private accounts. But one of the ironies here is that the earnings limit for payroll tax contributions exists because that's the way Social Security's Democratic creators designed it. That is to say, they didn't want it to be perceived as a soak-the-rich welfare program, but as a "universal" compulsory savings scheme. Since payouts would be limited, it was only natural that contributions would be too. The earnings cap for Social Security contributions is already indexed to grow with average wages -- that is, faster than general inflation. And as the chart shows, it has increased very rapidly since the 1970s, its current level being double what it was in 1988. Annual tax increases are already planned from here to eternity. As a political matter, we might be able to understand the need to raise the cap modestly at the end of negotiations to close a deal with Democrats. But by putting a cap increase on the table now -- by negotiating with himself -- Mr. Bush has all but guaranteed that Democrats will stage a tax-cap auction in exchange for their votes. Nebraska's Ben Nelson might be available for $100,000, but North Dakota's Kent Conrad isn't the liberal we've come to know if he doesn't demand $200,000, or lifting the limit altogether (as it has already been lifted for Medicare's 2.9% payroll tax). An income of $90,000 -- even $150,000 -- is hardly rich if you're trying to raise a family in many areas of this country. Lifting the cap amounts to a whopping 12.4-percentage-point marginal tax rate increase on middle-class households, as well as on small-business owners who don't even get to enjoy the fiction that their employer is paying half. These are some of America's most productive people, and, by the way, they tend to vote Republican. Rather than proposing such punishment for his own supporters, President Bush might instead have pointed out that Mr. Greenspan went a long way toward rebutting the argument for such a tax increase. The Fed Chairman opined that, as long the phase-in of personal accounts was done gradually, the financial markets would probably yawn at $1 trillion in new borrowing -- and maybe more -- to cover "transition costs" that are largely an accounting shift anyway. That is, the borrowing would merely be an acknowledgment of liabilities everyone knows are already there. Mr. Greenspan was essentially endorsing Mr. Bush's view that the sooner we start reform the better. We supported personal Social Security accounts before most Republicans now in Washington were elected, but the early direction of reform is looking more and more worrisome. First, House Ways and Means Chairman Bill Thomas proposes to finance private accounts with a huge new VAT levy, and now Mr. Bush puts his own tax hike on the table. What an unhappy irony it would be if Republicans finally gained control of the levers of power in Washington only to pass the largest entitlement expansion since 1965 (the Medicare drug bill) in Mr. Bush's first term, and effectively repeal his income tax cuts in the second.