Social Security redux

We all know Social Security in trouble. After a lot of rhetoric, dubya made only one attempt at addressing the problem, but it would have been so disastrous for the American people, the Republican-controlled Congress (at the time) actually would not go along with the scheme. Dubya’s “solution” was going to be privatization where the US Government would have to somehow pay out benefits to current recipients with no income from current workers. That taxation would then go to private for-profit companies, and they would be trusted to do right by the American people, instead of their own profits. Like I said, it would have been disastrous for the American people.

John McCain and Barack Obama both recognize that there’s a problem, and both propose different solutions.

McCain was fully on board with Bush’s plan, where private for-profit companies would get a big slice of the pie, and benefits would be scaled down over time. McCain is not clear on whether that scaling down would be to decrease checks to Social Security recipients, increase the retirement age, have retirees pay income tax on their checks or some combination. Since that part of his plan is distasteful to discuss, he always avoids answering such questions about his plan, but instead emphasizes that the tax subsidies for the upper class would remain intact. Stick with the party line.

Obama has a different approach, starting with this simple fact: if you make less than $102,000 per year, you’re paying 12.4% in Social Security tax (your company can pay part or all of that). Money made above that is TAX FREE. That’s right, people making more than $102,000 per year are getting a tax subsidy paid by those making less. Eliminating this tax loophole entirely sounds like an obvious solution, and would even lower that 12.4% figure. Obama, however, knows that to pass the Senate, any plan must politically satisfy both sides, and the Republicans will filibuster any attempt to eliminate tax subsidies for the rich. Therefore he calculated just what would be needed to fix Social Security, while not brining the rich up to the taxation level of the poor and middle class, which makes the Republicans happy. That works out to a tax rate of between 2 and 4% on income over $250,000. Not just a mathematical solution, but a politically savvy one. Sounds wiser to me than “privatize and cut”.