Read my lips: no new taxes for Social Security

Rumors are flying that President Bush, so desperate to salvage his promise to “save” Social Security, is holding open the possibility of a payroll cap increase (the limit on income subject to payroll taxes.) Forget personal accounts, here’s Bob Novak on the potential cave-in:

Eliminating the cap on payroll taxes would constitute the largest tax increase in U.S. history, estimated by the Heritage Foundation during the last Congress at $1.4 trillion over 10 years. This analysis predicted that such a step would cost nearly a million jobs and more than $55 billion in projected personal savings.

The economic woe that would result from higher payroll taxes would be matched by political damage to the president if this outcome were adopted by the Democratic-controlled Congress with his approval but support from only a few Republican legislators. That political calamity can be averted if Bush takes any payroll tax increase off the negotiating table, just as Democrats refuse to talk about a partially privatized Social Security system.

As far as I’m concerned, I’d rather see Social Security fall into the ocean before payroll taxes are increased, yet again, to prop up this inequitable system of wealth transfer from the working young to the (relatively) well-off elderly. As I’ve noted before, the payroll tax cap which is indexed to inflation, was set by FDR to insure that Social Security is a “universal” benefit. Last month, Opinion Journal expanded on what a cap increase means to the entitlement:

What liberals dearly want is to raise the payroll tax cap. Under current law, Americans pay a 12.4% Social Security tax on all wages up to $94,200 in 2006, and the cap rises each year with inflation. (There is also an uncapped 2.9% Medicare payroll tax on top of that.) So why not lift the cap a little more, say the taxers, perhaps to $150,000 if the trade-off is benefit cuts that will prevent even larger tax increases in the future?

One answer is that Social Security was always meant to be run like a pension program where the taxes paid by workers are linked to the benefits they get back during retirement. Eliminating or substantially raising the cap would convert Social Security into an overt income redistribution program. If that is the direction Congress wants to go, we should all then end the pretense that Social Security is some kind of "universal" insurance program and call it welfare for poor seniors.

In the middle of President Bush’s 2006 State of the Union address, Democrats applauded when Dubya noted that Social Security reform had been blocked. Here’s how Donald Luskin described the scene:

And as for those cheering Democrats, they didn’t applaud because reform is actually dead. They applauded to embarrass the president of the United States, and make it harder for him to promote reform in the future.

But reform isn’t dead. It can’t die. Reform is inevitable, because the Social Security system really is in crisis, in the sense that the accounting mirage of the Trust Fund doesn’t hold any real assets to pay off the system’s obligations. Even if it did, the assets would be exhausted in a few short decades as the baby boom generation retires.

Yet now, suddenly, Social Security reform is a hip issue again. As somebody who pays intense attention to this issue, I can’t help but feel the Democrats are on the cusp of an entitlement panic. Why should President Bush now cooperate with a party who happily, gleefully, and strategically played Social Security for political gain? The Republicans made a good faith effort for reform, taking personal accounts off the table and then proposing a price-index program that would protect poor retirees. No dice, said the Dems.

Well, fine, then. The Republicans should resist any tax increase and let the program wither away under the weight of it’s own overextended obligations. Goodbye New Deal.

Extra - Bulldog Pundit: "Will Bush repeat the sins of his father?"