November 17, 2013

PRESIDENT OBAMA and the Republicans never have struck a “grand bargain” on spending and taxes. Nor does it appear likely that the current budget bargaining between Democratic and GOP negotiators in Congress, who met inconclusively again on Wednesday, will produce one. They may fail to achieve even a small bargain. Even so, Mr. Obama faces rising pressure from the left flank of his party to defend entitlement programs tooth and nail. That pressure comes although such programs represent the lion’s share of federal expenditure growth in the coming decades.  

In recent days, those styling themselves “bold progressives” have been rallying support for a bill sponsored by Sen. Tom Harkin (Iowa) and Rep. Linda Sanchez (Calif.), both Democrats, that would increase Social Security benefits. Supporters tout it as courageous pushback against austerity; in fact, it’s a case study in how not to redefine liberalism for the 21st century.

The Harkin-Sanchez proposal would change Social Security benefit formulas to produce an average increase of $60 per month, plus a more generous annual inflation adjustment, than the program uses now. It also would extend the life of the notional trust fund from which benefits are drawn by 16 years. To pay for this, the bill would subject all wage and salary income to the 12.4 percent Social Security payroll tax, as opposed to only drawing from income up to $113,700 as is presently done. For someone earning $200,000 per year, this would mean a tax increase of more than $4,000 per year. For someone earning $1 million, the tax increase would be $58,700.

It’s a massive transfer of income from upper-income Americans to the retired. A tax increase is not, in itself, objectionable. Revenue is necessary to pay the costs of an aging society, and it should be raised progressively. With respect to Social Security specifically, the percentage of wage and salary earnings subject to the tax has shrunk in recent years, and there’s an argument for correcting that.

Yet even the rich have finite resources; government can only go to that well so many times. Why spend this gob of revenue on the elderly, who are already heavily protected by the federal government? The bill’s authors warn of a looming “retirement crisis” because of low savings rates and disappearing private-sector pensions. In fact, the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.

This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program. But if anyone has a claim on a greater share of federal resources, it would seem to be the young — and especially the poor young. Unchecked entitlement spending for the elderly crowds out spending on programs that might help them, as well as defense, research, infrastructure and law enforcement.

The fiscal predicament facing the U.S. government is a double one: how to bring taxes and spending into rough long-term balance while ending the squeeze on non-entitlement spending enshrined in current law. It’s not an easy task. It won’t get any easier if progressives define progressivism as opposition to budgetary realism.