AARP: Raise High the Payroll Tax
November 03rd 12:51:44 PM
In an interesting series of events, AARP is now helping Democratic Congressional candidates back away from endorsing payroll tax increases, a position that AARP supports. The Wall Street Journal offers insight into how this likely came about and what the implications are.
The story from AARP is that candidates who supported a "balanced Social Security plan" did not mean to suggest that tax increases should be a part of that plan. While it is nice to see people back away from a tax increase, one has to wonder what the candidates thought a balanced plan without the increases would look like. They could not have considered benefit reductions alone to be a balanced plan. And with Democrats opposing progressive indexing for fear of pushing Social Security closer to a welfare program, we know that indexing was not part of a balanced plan either.
Which leaves an increase in the payroll taxes of all workers or an upward adjustment of the contributory cap. It is not clear why Democratic candidates don't oppose the latter for the same reason they are against progressive indexing, but the Wall Street Journal makes a strong case that candidates did indeed have a cap increase in mind. As the editorial notes, the balanced plan supported by AARP consists of benefit cuts and "additional contributions from high income workers."
If the candidate disagreement with AARP concerns increasing or eliminating the contributory cap--and assuming this disagreement actually exists--the candidates should clear the confusion by explaining what they meant by a "balanced Social Security plan." We should not let these folks off the hook by explaining yet again what they do not support; we should demand that prior to the election, they explain what they actually do.
Posted by Jeremy Tunnell
Comments
The biggest problem with AARP's advocacy of tax increases isn't so much that they favor tax increases -- they're free to advocate this if they want. The bigger problem is that they overstate how much a tax increase would do for Social Security, by relying on metrics that very obviously tilt the decision-making toward tax increases.
For example, if you go to the AARP materials you'll see it claimed that raising the cap on taxable wages to cover 90% of all national earnings would solve more than 40% of the problem. But that relies on a highly distorted measure of the problem. If you go to their source material at the SSA web site, http://www.ssa.gov/OACT/solvency/provisions/charts/chart_run143.html, you can see that it actually solves only about 17% of the long-term cash shortfalls. The picture on that page is worth many words, the qualitative problem barely changes. Also, the breakdown by year at http://www.ssa.gov/OACT/solvency/provisions/tables/table_run143.html shows that this would only delay the onset of permanent cash deficits by four years, from 2017 to 2021.
As we discuss Social Security solutions, we need to be cognizant of metrics that tilt the playing field toward one solution vs another. AARP is free to advocate tax increases if they wish, but they need to be more straightforward about how little of the problem tax increases can really solve.
Posted by Feverishb on November 02nd 08:08:04 AM
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