December 2nd, 2006

Should tax increases be "on the table" to fix Social Security?

Posted in  Entitlement Reform 
Author: Tom Giovanetti || Location: Lewisville, Texas, USA

I'm not surprised that Don Luskin didn't care for my recent blog posting on his bashing of Peter Ferrara and his plan for fixing Social Security. I'm also not surprised that he didn't appreciate my pointing out his "change of position," in that he once highly praised Ferrara's plan, but now has been co-opted by the White House into disagreeing with it.

Luskin was at some point highly enthusiastic about the Ferrara plan; enthusiastic enough to be a supporter of a group called the Alliance for Retirement Prosperity (AFP) that was created to promote the plan. IPI was also involved in AFP, though AFP never really got off the ground. Luskin sung the praises of the Ferrara plan in this article from SmartMoney.com, which is basically the same blog entry that I linked to.

I don't know when or why Luskin changed his mind about the Ferrara plan. But people are allowed to change their minds.

And Don Luskin is an established member of the supply-side economic growth crowd, of which IPI also considers itself a part.

I'm not going to call Luskin names, even though he called Peter Ferrara a pretty ugly name. Luskin apparently trusts his sources at the White House--fair enough.

I don't.

I don't trust this White House one tiny bit to come up with a good deal on Social Security. This White House has shown itself to be not only unprincipled on policy (I wonder if Don Luskin supported the steel tariffs?) but also dysfunctional as far as anything resembling a coherent policy process is concerned.

So if Don Luskin trusts the White House on Social Security, he's got more faith in this administration than I do, which I suppose is the heart of this disagreement.

Of course, my cynicism about this White House's ability to manage a Social Security fix has the advantage of hindsight, having seen how badly the White House botched the Social Security reform effort in 2004-5. IPI developed a plan that was far superior to anything else that had been suggested, and the Chief Actuary of the SSA modelled it and said it worked beautifully, but the White House insisted on trying to sell the country on pain and austerity. It didn't work then, and it won't work now.

Presidents in search of a legacy are dangerous things. When you look back at some of the horrendous legislation this President has gleefully signed, it makes me tremble to think of the compromise he might be willing to sign on Social Security.

Back to Don: Don feels that I misquoted him. Well, I'm sorry about that, but it's hard for me to feel too guilty about supposedly misquoting Don when I offered a direct link to his blog entry. How can you possibly be guilty of trying to misrepresent someone's words when you provide a direct link to that person's words?

The real point here is that not only has Ferrara offered the only plan that completely fixes Social Security without either tax increases or benefit cuts, but Peter has also been a prophet on how this debate would unfold. Peter predicted that the minute people started talking about reducing benefits, personal accounts would be tossed overboard, and that's exactly what happened last year when people like Lindsey Graham starting bashing personal accounts.

The real driver behind Peter's proposal was his accurate fear that the green eyeshade crowd would seek to "fix" Social Security through benefit cuts and tax increases, instead of transforming it into something that would be a genuine asset rather than a liability. And the only way to do this is with real, large personal accounts, which Luskin once praised.

And, by the way, the editorial writers at The Wall Street Journal agree with IPI that a major policy disaster is looming in the form of this "everything on the table" approach. Luskin must also disagree with them if he disagrees with Ferrara and IPI.

Luskin has apparently thrown in his lot with the "everything should be on the table" crowd. Well, part of "everything" is a giant marginal tax increase in the form of raising the income cap on Social Security payroll taxes. Put me squarely in the camp of "not only should giant marginal tax increases NOT be on the table, but we're shocked that Don Luskin thinks they should be."

Trying to patch Social Security with benefit cuts and tax increases, just makes a bad thing worse. And this rot about "all options have to be on the table" is just the prelude to the defenestration of personal accounts. I remain genuinely puzzled to see that Don Luskin, someone who gets wealth creation, economic growth, and the harm posed by higher taxes, has apparently been co-opted by the forces of compromise. Don, if this process of compromise goes on this year, you'll see personal accounts jettisoned. In a deal involving tax increases and benefit cuts, it is inevitable that personal accounts will be sacrificed. IPI doesn't want to be guilty of contributing to such a disaster.

Let me just say this: No deal is better than a bad deal on Social Security. We're far better off waiting another few years for a President who understands that not only are personal accounts the solution, but that personal accounts are a complete solution--as Don Luskin once believed.

No true supply-sider should grant that tax increases should be included on a table of policy options. I'm just appalled at the folks today who are entertaining the possibility of tax increases. They should know better. They once did.