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Social Security is Important, But...

I know I have a tendency to drop important points into the middle of longer posts, sometimes as digressions. Every once in a while I think I should pull some out and give them some proper emphasis.

One such point: Social Security is important. It's the cornerstone of the New Deal, it lifts more people out of poverty than all other social programs put together, and it has always been the ultimate prize in the battle between those who believe that government should provide some security from the cruelty of the market, and of aging, and those who believe that in the game of life, winners win and losers lose. Social Security is for liberals (and moderates) what Constantinople was for the Byzantine Empire, the cradle of our civilization, to be defended even when all else is lost. And it is beginning to look like it has been, for now. This is a great tactical victory, a demonstration of unity and principle, and a major blowup in the Bush/DeLay command-and-control system. But we are far from the end.

Still, while a great many of us have been focused like a laser beam on Social Security, Congress passed a major piece of legislation curbing the use of the courts to redress corporate abuses, and it looks like the cruel bankruptcy bill can no longer be held back just by playing clever tricks to get the anti-abortion members to oppose it.

I'm not saying that these bills could have been or could be stopped if bloggers and advocates turned some of their attention away from Social Security. Nor do I know with certainty that these bills are on balance terrible; both are mixed bags that end some abuses but go way too far in other respects. But it's worth remembering that the economic security platform that government can provide includes more than just entitlement programs like Social Security and Medicaid. Bankruptcy, the only alternative to which in history has been debtors' prison, has given people a way to take risks in the economy and get a second chance if those risks don't work out. The ability to use courts to push back against abuse of economic power is also part of the safety net.

Whether Ron Brownstein's and my speculation that Social Security privatization is at least in part a sideshow intended to create sharp partisan contrast is correct or not, there is no doubt that there is much more to the right-wing agenda, and they keep flinging things at us faster than we can deal with them. Some issues are important as issues, but there are two that have a kind of transcendent importance, that deserve every bit as much attention, from everyone who can help in any way, as Social Security. They are:

1. Preventing making the tax cuts permanent. This looked like a lost cause in mid-December. But the ground is shifting, and Social Security is helping undermine the ground. "Save Social Security" can be turned back on Bush as an argument against giving away revenue decades into the future that we will almost certainly need at least some of. And the consequences of losing are horrendous. If federal revenues remain at 16.2% of gross domestic product, lower than they have been since 1951, then in just 11 years, there will be no room in the budget for anything except Social Security, Medicare, Medicaid, defense and interest on the debt. Government could do nothing else. That's at least as big a deal as Social Security -- in my view, much bigger. Permanent tax cuts would become almost constitutional, setting limits to action that would be deeply embedded in the political process and changed only by another transformational moment, most likely a serious crisis.

2. And more literally constitutional: Keep "Constitution in Exile" judges off the courts. If the courts return to a pre-New Deal jurisprudence, very little of the role of government that we have all taken for granted will remain. As I pointed out last week, those judges who adhere to the "Constitution in Exile" mantra believe that the moment of exile occurred with the decision upholding Social Security, so this is all part of the same fight. It's not just about Roe v. Wade. It's about our ability to act as a nation to protect individuals or deal with the challenges of the modern economy.

And some of us need to start thinking about these things, because while we're obsessing about whether Joe Lieberman should be strung up by his fingernails or his toenails for talking to Lindsay Graham, they will shove these two things through so fast you won't have time to protest that "The Constitution does not enact Mr. Herbert Spencer's Social Statics."

Posted by Mark Schmitt on March 2, 2005 | Permalink


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Hear, hear!

Posted by: Petey | Mar 2, 2005 6:04:25 PM

You are absolutely right about both points, especially the tax issues. According to the Wall Street Journal, Bush has been told that no tax cuts are going to be dealt unless they actually expire this year. That means putting most of them off at least until after the mid-term elections.

Meanwhile, although Congess enacted a one-year fix for the Alternative Minimum Tax last year, it was not included in the Bush budget for this year. That means that for 2005, it would again hit people with high deductions and adjusted gross incomes above $112,500 for a single and $150,000 for a couple, that is, people in high-tax states and/or with very large medical bills or mortgage interest.

It may be that Bush will not admit the rate cuts were ill-advised, but will not put any energy behind changes to the alternative minimum tax. Because it is not indexed for inflation, it will capture more and more income recipients who are in the 33% bracket (as opposed to those in the highest bracket, who are already subject to it). So these upper middle class folks will, without fanfare or action by Congress, lose the benefit of the rate reductions in the highly touted Bush tax cuts. Whether they notice in April 2006 or not depends on how much it is publicized.

To me the real battleground should be the estate tax. The idea of having no tax whatsoever on large estates while we will almost certainly be cutting Social Security benefits and health care is obscene.

Posted by: Mimikatz | Mar 2, 2005 6:25:25 PM

As important as the estate tax is (and moreso in the future), is very unpopular. Heirs taking is almost as psychologically basic as deserving what you earn.

Posted by: rich | Mar 2, 2005 8:22:42 PM

Semi off-topic - if Bush makes two Constitution in Exile appointments to the Supreme Court, and the "bad scenario" unfolds in a couple of subsequent decades, I predict this:

A slow breakup of the USA. Imagine the US in, say 2025 or so, after most environmental and consumer and saftety net protections are rolled back, (but not in the Blue states, of course, who create their own counter policies whenever possible).

Why the heck would West Coasters and North Easterners want to bother anymore with their Cato-fantasy neighbor regions? If the lower midwest and South think they can make it without the NE and West, let 'em try.

Robert Kaplan once wrote something along these lines; Canada comes into play here as well. Longer term, like late 21st century, what's the point of a big old gigantic USA anyway? Imagine how much more distributed economic development would be world wide.

Our worries about "Red states" today will seem so quaint and insignificant.

Posted by: Crab Nebula | Mar 2, 2005 8:33:24 PM


I'm not sure the absence of a tax on estates, even in the face of a regressive tax policy, is "obscene."

Would you accept the idea of a transfer tax limited to the untaxed capital gains flowing from the decedent to the beneficiary and reportable on the beneficiary's income tax return?

As an aside, the "annual AMT fix" is likely to be around for years. It's great theater.

Until the date the AMT fix is adopted, the budget benefits from its contribution to higher "projected revenues." And each year, until the "fix" is actually adopted, it makes it appear that Bush's permanent tax cuts are much cheaper than they will, in actuality, prove to be.

Posted by: Ellen1910 | Mar 2, 2005 9:00:28 PM

I believe that it would be beneficial if you would create an overall strategy list of likely Republican moves over the next five to seven years. The roadmap to governance.

Yes, five to seven years may sound like a long time, but the list is fairly obvious.

While a thousand or so bills are submitted during each Congress, about a hundred actually pass.

The Republican list of moves on the budget/social programs shouldn't be too difficut to pull together. Moreover, just imagine the funding level reductions that will be pursued as we continue to add deficits. At some point, the funded deficits interest payment obligations will eat into the discretionary spending programs.

For a master list of potential strike targets, check out the 2004 Green Book (I believe)over at the House Ways & Means Committee, chaired by Bill Thomas, R-CA. He's the one to watch in my opinion.

Anyway, a few thoughts to ponder over.

I've not seen a Repub strategy master list on any of the reality-based blogs. But you know it exists within Repub leadership ranks.

Posted by: Movie Guy | Mar 3, 2005 12:19:18 AM

The Right has been talking about Social Security reform or dismemberment for decades, yet they now seem unprepared to articulate the specifics of a viable plan. What have they been paying those wingnut think tanks to do all this while?

They spent 30 years building their glorious revolution, but haven't a clue what to do now that they are faced with the task of actually governing.

Posted by: peter jung | Mar 3, 2005 12:29:44 AM

So, in addition to getting sent to fight a war to find weapons that don't exist and risk losing his life, limbs, sanity (anyone watch this week's FrontLine special?), and friends, a soldier gets to come home to a mailbox without a Social Security check and a credit-card company seizing his house.

It's like the Republican agenda is trying to make America into the cruellest country song ever.

Posted by: Ryan Goodland | Mar 3, 2005 9:09:33 AM

that deserve every bit as much attention, from everyone who can help in any way

Just wondering, but what are the most effective ways for ordinary folks to help here? I know to volunteer during election season, but at these times I don't really know what to do. Are phone calls and handwritten letters to Senators and Congressmen what's called for here? If so, you can bet I'll be writing and calling.

Posted by: Ethical Werewolf | Mar 3, 2005 11:24:18 AM

Great post Mark. One quick anectdote regarding point #2. As a first year law student at Boston University I had Randy Barnett as my contracts professor. Barnett is an accomplished libertarian, natural law academic, a pretty decent instructor, a participant at the Volokh Conspiracy, and the author of a book entitled "Restoring the Lost Constitution." People interested in opposing the Constitution in Exile crowd on the merits should probably read Barnett's work, in addition to internalizing Holmes' deservedly famous (and still persuasive!) dissent in Lochner. Rhetorically, I'd suggest slapping the "activist judge" label on the Constitution in Exile crew. Movement conservatives love to hate judicial activism, at least with respect to gay marriage, so we should make them put their money where their mouth is. I even seem to remember that Barnett himself was a might bit sensitive about all the activist judge criticism. I wonder why?

Posted by: fnook | Mar 3, 2005 11:26:03 AM

Mark, I agree with you, but if we're really going to make a change we have to stop patting ourselves on the back like this: "This is a great tactical victory, a demonstration of unity and principle...."

Preventing the destruction of a wildly popular program is most definitely NOT "a great tactical victory." It is merely the baseline to measure basic competence. Indeed, it says a great deal about Dems' basic incompetence that Bush felt comfortable bringing it up in the first place.

And besides, we haven't done a damn thing yet. This saga is not over until we muster the wherewithal to punish the GOP electorally for trying to do this. Because even if it looks like we won the battle now, it's of no consequence if the same group is around two years from now to try again.

Posted by: Brian C | Mar 3, 2005 1:15:27 PM

Re: the estate tax: Why does an accident of birth (having the luck to have wealthy parents) entitle anyone to millions tax free? If "welfare" is a disincentive to poor people, why aren't huge inheritances morally corrupting to the scions of the rich? This is why Warren Buffet and Bill Gates' father support the estate tax.

On how to tax estates, at present the estate tax doesn't even apply to estates under $1.5 million per person, rising to $2 million next year and 3.5 million in 2009. So only a very tiny, tiny fraction of estates are even subject to the tax. And some of these are huge estates in the hundreds of millions, even billions. Yes, the estate is taxed at 45-48%, but heirs get the benefit of a step up in basis for all property.

A fairer way would be to tax inheritances above a certain level, say $250,000, at ordinary income rates. BY spreading wealth around, a person could avoid more taxes, but if it all went to only a couple of people, the tax would be higher. Another alternative is to drop the step up in basis,m and require the heirs to pay full capital gains tax when property is sold. This will be the case if the estate tax is repealed, btw. The downside to that is that it creates a record keeping nightmare, and it provides a disincentive to sell property. Allowing each generation to start with a new basis makes things easier, but only if coupled with a fair tax.

And as for those who claim that this is "double taxation," so what? The system is riddled with couble and triple taxation. I paid federal tax on all my my earnings, plus payroll taxes on most of them, and now am taxed on my Social Security benefits. And pay sales taxes.

Posted by: Mimikatz | Mar 3, 2005 1:25:05 PM

Any discussion of tax policy has to begin with a recognition that federal taxes (state taxes are different) have only one function -- setting the society's savings rate.

Note: The federal government doesn't pay for goods and services with tax revenues; it pays with electronic credits to vendors' checking accounts. All tax receipts are "shredded."

We want enough savings (capital) to support productivity growth but not so much that we are flooded with useless products (i.e., thousands of miles of dark fiber optic lines).

Repubs believe that society's savings can best be employed if their investment direction is left to Mrs. Got Rocks rather than to Joe Sixpack.

They've decreased taxes on investment income and capital transfers and increased taxes on families who consume most of their income. Mrs. Got Rocks has more savings, now, and Joe and Jane Sixpack have less.

What do we Democrats believe?

Posted by: Ellen1910 | Mar 3, 2005 2:16:08 PM

Mark, you touched on the major problem supporters of privitization have with the current Social Security program right here:

"...it's worth remembering that the economic security platform that government can provide includes more than just entitlement programs like Social Security... "

Not only is Social Security termed an "entitlement" it is viewed as one. Somehow, a government funded welfare program (which from FDR's own words was to be transitioned into private investment) has become a god-given right that every man woman and child is entitled to, including those with absolutely no need for it.

I am strongly in favor of a safety net but shouldn't it be for those that need catching, not everyone regardless of whether they need it or not? If you allow workers to invest in the economy the economy will grow and their investments will be there for them when they retire. If at the end of someones life the investments aren't enough to support them you make certain the safety net is there to support them instead. Is it really that wrong to have a social security system based on need? Is it really wrong to invest money into private businesses made up of the very people we seek to protect? If so, why is it wrong?

Posted by: Lloyd | Mar 3, 2005 2:16:49 PM


Some states do have an inheritance tax (along the lines of what you are proposing). I believe that Pennsylvania is one. It gets complicated, though, because you pay a different rate depending on your relationship to the decedent.

I've always supported that principle. By accident of birth I've had total screw ups for parents but grandparents and great-grandparents who helped a lot. So I was a little touchy when the whole thing came up. When the estate tax cut in at $600,000 (it was about 55%), it was pretty grim especially when you included the generation skipping tax. Short version: You give money (more than $11K per year) to your grandkids and in addition to a gift tax, you pay a tax equivalent to the highest marginal estate tax rate. If you leave it to your grandkids, same thing. So try to leave $25,000 to a grand-child. It'll fall to about $12K. Now ordinarily medical expenses and tuition (not room and board payments) are exempt from gift tax, but I don't know whether they are free from GST.

The dirty secret is that the estate tax dies in 2010 for one year, but then it drops down to $600,000 the very next year. The weird thing about these Republicans is that they're so greedy they'll probably lose the whole thing eventually.

Posted by: Abby | Mar 3, 2005 2:21:42 PM

Lloyd, it's not about what's "wrong" here. SS is a practical piece of policy/legislation that today is *the one guaranteed piece* of an individuals' retirement finance. It's a protective floor. The rest is up to them. 401ks, IRA, real estate, whatever. If you're referring to means-testing - I agree with you. It just seems an impossible politcal sell, unlike universality. And considering what is or is not a political sell is important here.

When you have a program that is not an entitlement, not universal, it is much weaker politically. So the universality of SS is a strength; it will "be there" and people can make long term plans accordingly. This stability and predictability is especially important for those at the economic margins.

Look at the performance of 401ks for people in various states; self management of retirement portfolios by many people has a sad and sorry track record.

Again, nothing "wrong" with private investment. Just with the existing Cato-Heritage-Bush implied-etc. proposals to allow the transformation of existing SS into an an unmanaged non-insurance program that will expose millions of seniors to bankruptcy in old age if they pick stocks incorrectly, are swindled, or have the bad luck to retire during a frequent downturn. Again, 401ks and the experiences of Britain and Chile are very instructive. It has not gone well. Gov't ends up bailing these people out anyway.

By the way, what specific statements by FDR are you referring to? Not the quote that Brit Hume mangled? Hume deliberately truncated a statement by FDR on this issue for partisan purposes. If there's another statement by FDR on this, I'd be curious.

Posted by: Franklin Delano Sinatra | Mar 3, 2005 3:41:57 PM

Why in the world shouldn't there be entitlements for the average person? We certainly grant the government 'entitlements' all the live-long day.

99.8% of what you do is simply following orders, obeying rules, or heeding that warning sign. All day long we do this with no demonstration that it makes sense or is in any sense fair. We do it with investments for years at a time. And, usually, when it doesn't work, we decide to try again later or just write it off to bad luck.

If there weren't some 'entitlements' for the average citizens, there would be no reason to go along with this at all. And spare me the Libertarian baloney about how we shouldn't go along with it. The history of the Poles is all we need to see why contrarianism or liberterianism is a really bad idea.

Entitlements are also important to the society or government furnishing them, as they provide a known or fixed cost that can be used to calculate the cost of future actions.

Maybe this is all to straight-forward or simply put to appeal to the big thinkers, but I'm guessing that straight talk is something the Democrats could use more of.

Posted by: serial catowner | Mar 3, 2005 6:09:35 PM

I know I have a tendency to drop important points into the middle of longer posts, sometimes as digressions.

Yeah, a lot of good thinking comes about that way.

Well, you've managed to scare the bejeezus out of me with this post. Thanks very much for trying to supply direction, though. It sounds like you're keeping your eye on the ball.

I love the OWHJ quote, by the way.

Posted by: Swan | Mar 3, 2005 9:17:54 PM

Just use the quote, "Where much has been given, much is expected." Also mention Christian duty includes taking care of the less fortunate.

Posted by: la | Mar 3, 2005 9:26:52 PM

Franklin, you make a very strong and convincing argument for keeping SS universal but I'm just not willing to drink that kool-aid anymore. I don't believe that we can't guarantee a safety net without mandating that everyone accept payments that they don't need. In my first post I was going to give my thoughts on the estate tax but decided against it. Your post, and a couple others since, make me want to make the point now.

Your point that means testing "seems an impossible politcal sell" is a good one. Means testing is hard because the government is asked to determine who deserves to be GIVEN what. The problem is the exact same with the estate and income taxes though, except in those cases, the government is asked who deserves to KEEP what. This is the single biggest problem with the centralized planning of a redistribution of wealth: How much can the government take and how much can the government give before the majority says it's too much have to be asked at every step. Essentially, it's a question of fairness, but what is "fair" is subjective at best.

To sim up Serial and Mimi's posts, we just need to accept that the government controls 99.8% of our life and that double and triple taxation are part of the deal. While of course that's true in the current system it doesn't mean that it has to be true in a new system in the future. I've posted on here before that a tax on spending rather than a tax on income or worse, on wealth, is far fairer and far more effective (in terms of government revenue) than any other tax.

Ellen seems to think that the republicans want to shift more of the burden on the working class and let Mrs. Got Rocks skate. Simply put, she's wrong. Mrs. Got Rocks gets to skate because she can afford accountants, Joe Six pack get's killed in April because he can't scrape together enough money to go to H&R block so he fills out the 1040ez and misses out on everything that should be coming BACK to him. That's what you get with our tax code.

Mrs. Got Rocks gets a new Land Rover every year, and Joe Six Pack still drives the 89 Cutlas he bought used. Mrs. Got Rocks has a 5 Million Dollar estate that is constantly updated with the latest gadgetry while Joe Sixpack lives in $140,000 house and bought an $89 dollar dvd player last year. With our income tax we seek help Joe Sixpack buy taking 1/4 to a 1/3 of his income every paycheck and let him feel good about getting $400 dollars back in the spring. Is that fair? Would it be fairer if we mandated 70% of Got Rocks and 10% of Joe Sixpack. Fairer to who though? The moral dilemma disappears if we turned it around and taxed consumption and collected revenue from the Land Rover and the DVD player and let Joe Keep his paycheck.

The whole idea is that maybe the Sixpack family wont be consumers of social programs if part of their paycheck is automatically invested and the rest they get to keep until they spend it.

Posted by: Lloyd | Mar 4, 2005 6:14:18 AM

One other point about fairness: are you talking flat tax? or graduated VAT of some kind? if you do a tax on spending, a consumption tax, once you exempt taxes on food and other necessities to prevent the poor from being crushed, the rate of the new tax becomes much higher for everybody....except the wealthy. A VAT or flat tax can never work without an additional progressive tax politically - and there's also a fairness argument:

Why should the wealth pay more of their income in taxes than the poor? Because they benefit disproportionately from the govnernment. Yes it's true! The entire court system enforces the rule of law. Most of the courts deal with corporate law most of the time. And there's the SEC. Much, much more money is spent by the gov't to enforce a level playing field for business than setting up any food stamp program. Amazing how few people know this. Of course, the other stuff gov't does benefits everybody equally, schools, police, fire, enviro protection, national defense, highways, etc. All this stuff cost money, and nobody wants to pay much for it -- until you tell them it may go away.

And let's not exclude luck. Luck is a major factor in wealth with most people. I know plenty of wealthy people. Many are very competent folks, just like many non wealthy people. But social connections and magically being in the right place at the right time can lead to life and career events that put a person on a trajectory to make 20 times as much money as their identical life twin.

Money is not merit. Fairness is about creating equality of opportunity in this country, IMO. Create a place where everyone has a shot at making it, not enshrining permanent advantages on one class of people who can then exert a disproportionate influence on government through political donations.

Posted by: Franklin Delano Sinatra | Mar 4, 2005 11:04:50 AM

I just dont see this point: "if you do a tax on spending, a consumption tax, once you exempt taxes on food and other necessities to prevent the poor from being crushed, the rate of the new tax becomes much higher for everybody....except the wealthy."

If you institute a nickle (as an example) on every dollar spent on non necessary items how is that nickle less of a nickle for wealthy people than it is for the poor? Isn't 5% always 5%? And to use Mimi's people again, if Joe Six Pack pays $800 dollars cash to his brother-in-law for his cutlass but Mrs. Got Rocks spends $40,000 to the Lexus dealer, doesn't Mrs. Got Rocks send the government $2000? How can she avoid that?

Your point is well taken and I assure you that I'm niether trying to protect the wealthy or crush the poor. I'm very familiar with what being poor is like. I also know that the majority of the poor would like to be wealthy someday and they will never be able to do it under the current system without the luck that you are talking about. This isn't the 1800's where you could put your back into the ground and build your fortune. Now you put your back into the ground and watch a 1/3 of it taken of your work taken from you. You can argue that the companies need to pay people more and you will have a point, but should government compound the problems of having a low income and high bills by not even giving the citizens that need the money most the chance to make the best of it? Also, do you not acknowledge that the amount someone brings home (pre tax) is not the amount that companies pay to employ those people? Aren't companies taxed the same amount that there employees are and doesn't that contribute to the problem?

The argument against all this is of course that if we were to repeal the income tax in favor of a sales tax the government would not be able to survive. But that argument is only true if you beleive that it's burden and responsibilities would stay the same. I don't, nor do I think it should.

Please respond as I'm really enjoying the debate.

Posted by: Lloyd | Mar 4, 2005 1:46:23 PM

Hi Lloyd, I don't have the time right now, but I'm very confident that if you and I were to be responsible for negotiating tax reform, we could come to agreement. Related: check out the blog Left2right and search for writing by Elizabeth Anderson (I think) about this kind of tax debate.

I don't feel the same about a negotiation between me and say, Dick Cheney, Grover Norquist, or Alan Greenspan. That's politics today.

Posted by: Franklin Delano Sinatra | Mar 6, 2005 12:18:45 PM