Brave, but dumb

Dem plan to save Social Security defeats the purpose of reform

Give John Larson some credit. The Democratic representative from Connecticut has gone further than anyone in decades to make Social Security solvent. The program’s actuaries estimate that legislation he’s introduced, the Social Security 2100 Act, would extend solvency into the next century. The bill already has 210 Democratic co- sponsors in the House, more than any other recent proposal. Mr. Larson wants the House to pass the bill before Congress leaves town for its summer break.

He hasn’t shrunk from tough choices. Congress hasn’t enacted any increases in income taxes or payroll taxes for middle- class Americans since 1990. Mr. Larson’s bill would raise the payroll tax rate for all workers. The highest earners would, however, face the biggest tax increases. The payroll tax, which currently applies to just the first $ 132,000 in wages, would be imposed on wages above $ 400,000 as well, and eventually on all wages. The result would be one of the highest top rates in the developed world.

In the past, Democrats have sometimes used Social Security as a political weapon. They have attacked Republican plans to fix its funding shortfall while pretending that nothing needed to be done or that tax increases on the richest Americans could solve its problems.

And there ends my praise for John Larson. The choices he and the Democrats have made are tough, yes, but they are also perverse. There’s a case for raising Social Security’s minimum benefit so that recipients have a guarantee of avoiding poverty. The bill goes further than that, however, raising benefit levels all the way up the income scale. Under current law, benefits for the highest earners who retire in 2050 are scheduled to be 51% higher than they are for their counterparts today ( even after adjusting for inflation). Charles Blahous, a conservative Social Security expert, notes that the Larson bill would make their benefits 66% higher instead.

In part, then, what Mr. Larson is doing is raising taxes on middle- class and rich Americans now in order to give them higher benefits tomorrow. That’s not a costless exercise. It can be expected to cause them to work less and save less than they otherwise would, and so keep the economy from growing as much as it otherwise would. A plan that addressed Social Security’s fiscal gap through benefit cuts — or even a mix of benefit cuts and tax increases — would, by contrast, yield higher labor supply, greater savings and a bigger future economy.

Making benefits more generous for the highest earners while also aiding the less- affluent fits with a theory that has long influenced liberals. They know that Social Security is a redistributive program — that it moves money from the well- off to the poor — but fear it will lose political support if that fact is made too clear. Sending checks to rich people makes the program less efficient economically, but serves the political purpose of disguising its progressivity. That’s why some liberals have fiercely resisted proposals to “means test” Social Security or otherwise scale back its benefits for the affluent.

The theory is open to question: The vast majority of Americans don’t want to see the elderly fall into destitution, and plenty of rich people must realize they are not net beneficiaries from Social Security. But even if the theory has some validity, following its logic forecloses other options.

You don’t have to be an antitax zealot to recognize that both the economy and the political system have room for only so many tax increases. Democrats have a lot of ambitious plans for expanding health care coverage, building infrastructure, combating climate change and pursuing racial justice.

If this bill were enacted, Democrats would have had their biggest success in raising taxes in generations — and used it for none of those things. Americans would have top tax rates that are high by international standards without progressives’ making any headway on the issues they have been highlighting. Instead, they would have used the money to raise benefits for the elderly across the board, including the elderly rich. That can’t be a wise use of economic resources, or political ones.