Soak the rich

Rich Lowry
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Posted: Mar 11, 2005 12:00 AM

The Social Security debate is headed toward a monumental political irony: It might well be that Republicans offer creative ideas to make the system more "progressive" -- i.e., more favorable to people lower down on the income scale -- and Democrats resolutely refuse to adopt them. What happened to the Democrats we used to know, who made progressivity the highest test of any public policy and leapt at any opportunity to "soak the rich"?
 
  Of course, this trend is partly the result of political desperation, as the GOP seeks ideas to make reform that includes personal accounts more appealing to Democrats. But that doesn't detract from the merit of the proposals. Some Republicans are now suggesting not just modernizing and putting what Democrats like to call the world's most effective government program on a sounder financial footing, but doing it in ways that are in keeping with that old Democratic value: fairness.

    In the past, Republican Sen. Jim DeMint from South Carolina -- who is seeking compromise with Democrats -- has offered a proposal that would allow lower-income people to invest a higher proportion of their payroll taxes in personal accounts. DeMint suggested a sliding scale that would allow lower-income workers to invest up to 8 percent of the payroll taxes they and their employers pay, while upper-income workers would only get to invest 3 percent. Remember: The diversion of payroll taxes into personal accounts is, in effect, a tax cut. So this proposal would be what Democrats always profess to favor -- a tax cut for the poor.

    DeMint's idea would allow lower-income workers to benefit disproportionately from the higher rate of return that personal accounts offer over sending the taxes on to the federal treasury. Also, it would help black Americans especially to develop private assets, an area where they lag the rest of America as a direct result of the nation's legacy of racism. What is there for liberals -- at least those who aren't theologically committed to handing President Bush a defeat on Social Security and opposed to encouraging private investment on principle -- not to love?

    Another key part of the Social Security equation is slowing the rate of growth of benefits to ensure the system's solvency. The administration has floated the idea of changing how Social Security benefits are adjusted over time, pegging their indexation to inflation instead of wage growth. This would create substantial savings. Republican Sen. Robert Bennett from Utah has a proposal to keep the more generous wage indexing for lower-income workers and slowly phase in the stingier inflation indexing for the wealthy (in keeping with this priority, survivor benefits should be made more generous, and Social Security's disability benefits left untouched). The burden of the savings would therefore fall only on those who can most afford it. What is this if not "shared sacrifice"?

    More controversial in GOP circles is Sen. Lindsey Graham's proposal to deal with solvency by raising the cap on payroll taxes from its current $90,000, thus subjecting more of the income of the wealthy to the tax. This is both a tax increase and one solely on the better-off -- in other words, ideal liberal policy.

    All these ideas could be part of a reform deal. But Democratic opposition to personal accounts could prevent it, as well as the parties' contrasting theories of the welfare state. Liberals generally want it to cover as many non-poor people as possible, so that there is a big, powerful political constituency for government. Republicans should want to limit governmental dependence to those who can't fend for themselves. GOP proposals on Social Security are drifting in the right direction -- toward maintaining the program as social insurance for the poor, offering uplift in the form of personal accounts and squeezing the governmental dependence of the fat and happy.

    So, stick it to Ken Lay. Pursue economic justice. Level the playing field. Stiff George W. Bush's rich friends. Apply any demagogic slogan you like. And do it all while making Social Security better and stronger.