The NYT on Social Security: All must suffer equally

I’m not sure where to begin on the New York Times’ final editorial for the year of 2006, which attacks Social Security reform because it has “failed” in Chile. In that country, people have the option to place up to 10% of their salaries into private retirement accounts and those who do have seen healthy returns on their investments, far above what the government could provide in a state-run program. But – hold onto your hats – those who choose not to participate, won’t have enough to retire:

The overarching problem for Chile — and the real lesson for the United States — is that private savings are not a substitute for a guaranteed core tier of old-age support. The first measure of success of a retirement system is not how much certain individuals manage to sock away, but whether the system as a whole provides basic dignity for all. By that measure, Chile’s privatized system has failed and Social Security has succeeded.

Well, the half of Chileans who are saving enough would argue convincingly that private accounts are a dandy way to save for retirement. But since societies from Chile to France to the United States will always produce citizens who can’t or won’t save, we’re all to be condemned to a socialist system that takes thousands in taxes now for a government-approved pittance later. Oh, I mean, “dignity for all.”

But now, after years of reflexive opposition to all mention of reform, the NYT is ready to embrace changes to save Social Security. What shall they be?

Getting there would require sacrifices from both political parties. Republicans would have to give up on their privatization efforts.

Done.

And the Democrats would have to control their knee-jerk tendency to preface any discussion of Social Security with a pledge never to cut anyone’s future retirement benefits.

That will never happen.

President Bush will also have to go further if there is to be any chance of progress while he is still in office. Tax increases must be a part of any plausible Social Security reform mix. Unfortunately, the president appears unalterably opposed even to something as overdue as raising the cap on earnings that are subject to Social Security tax.

Shocker: the NY Times wants a tax increase. When Social Security started it only asked that Americans pony up a lousy 1% of their paycheck for long-term retirement security. What a deal! Then it crept and crept up to the current 6.2% - or 12.4% if you consider that your employer is just going to cut back on wages to pay for the corporate contribution. So now, 80% of Americans pay more in payroll taxes than do for federal taxes. As for the cap on earnings: when FDR started Social Security, it was understood that the very rich would not receive a benefit proportional to their income which is why the taxable earnings and the maximum benefit are capped. Lifting the cap, aside from placing a new burden on high earners, would upset the egalitarian apple cart.

As long as tax increases are off the table, severe benefit cuts become unavoidable. If the gap in Social Security’s finances were closed through benefit cuts only, the average worker’s payout would equal only about 10 percent of preretirement earnings. Such bare-bones benefits would signal the end of Social Security, as surely as would privatization.

Unavoidable benefit cuts? Wow, that sounds like somebody very familiar. But pick your poison: increased payroll taxes, bare-bones benefits or a combination of both. Any of these pathways will erode the popular support for Social Security especially when Americans look to what they could have saved with their 401(k)s or just a simple savings account. If reform was embraced by the NY Times when the Republicans first delineated the long-term problems of the program, the pain might not be so deep. But now that the Democrats are in charge of Congress, the Times wants to ring the fire bell.

We don't need no water, let the entitlement program burn.