Dems rally against unions!

A mostly political Weblog.
Aug. 24 2008 8:52 PM

Dems Rally Against Unions!

OK, teachers' unions. Still ...

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"DHS moved swiftly on Obama's request for protection": Recently-obtained documents reveal that the Department of Homeland Security approved Barack Obama's 2007 request for Secret Service protection in six days. This is apparently moving "swiftly" at DHS. ... 3:36 P.M.

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Bob Wright has become a Bond villain. ... (This one, I think.) ... 2:30 A.M.

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Can't He Just Eat His Doughnut? (Is Obama Setting the Stage for a Social Security Means-Test?) Ramesh Ponnuru,  opposing Obama's plan to apply the 6.2% Social Security payroll tax to earnings above $250,000--it now stops at $102,000--says it would undermine the rationale of the system:

Social Security is structured so that the more you pay in, the more you get back. That's what supposedly makes it a compact among the generations and not a welfare program. Actually, what it does is make it an inefficient, disguised welfare program.  [E.A.]

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A couple of points:  

1) Changing how we finance Social Security won't turn it into a welfare program, or unmask it as a welfare program. A "welfare" program pays out benefits according to need whether or not the recipient works--at least that's the distinguishing characteristic of "welfare" people don't like. Social Security, in contrast, pays out benefits only to those who work for them (for the required number of quarters). Because of this "work-test," Social Security wouldn't be "welfare" even if it was funded entirely out of general revenues generated by the regular progressive income tax.

2) That said, funding Social Security through a payroll tax underscores the "work test" by mimicking the contributions in an ordinary pension plan.  In this Contributory Model, you pay in part of your paycheck until you've paid enough to "cover" your benefits, then (if you keep earning) you don't have to contribute any more. Some liberals may hate this "capped" payroll tax as regressive, but it's served the system well, emphasizing that you only get benefits through contributions, that rich and poor both contribute as well as benefit, that benefits are a finite foundation for retirement and not part of some general liberal redistributional impulse.

When Obama fuzzes up the "contribution" part of the tax--by starting up the payroll tax again above $250,000 in income--he risks undermining support for the system (even though he'd keep other regressive "contribution" aspects in place, including a) taxing low-income workers from their first dollar** and b) taxing only earned income and not investment income.) The new Obamified system wouldn't be welfare, but in order to make that point defenders would have to rely more heavily on the "work test." 

3) The third basis of support for the system--one emphasized by its traditional defenders--is a political calculation based on crass economic self-interest. Call this the Crass Calculation. Specifically, the system has to benefit enough people far enough up the income ladder to seem worthwhile to them. After all, even if it's not a welfare program it might not be a program voters want to support. The political fear is that the middle class or upper middle class will say "hey we're contributing all this money but not getting much back in benefits, so the hell with this system." By asking the affluent to pay what by historical standards is a big extra chunk of their income--at least 6.2% at the margin, maybe double that if you assume workers wind up paying for their employer's additional 6.2% share, definitely double that for the self-employed--Obama risks provoking the bailout reaction. That's one reason he creates his "doughnut hole" of no payroll tax between $102,000 and $250,000--there are lots of voters in that range he doesn't want to chase away. (If he has to eat the doughnut hole to get more revenue, the whole plan could collapse, politically.) 

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