Beware the Social Security/Tax Reform shell game

The White House political game planners envisioned actually enacting Social Security "reform" this year, followed next year by an aggressively partisan, regressive tax reform dressed as "simplification" as their wedge for 2006 elections.  This would enable them to continue to run as reformers who get things done against Democrats who only defend the status quo.  It's a smart strategy to force the Dems to oppose "tax simplification" (by making it unpalatably regressive) and it might well work at the polls.  However reality on the ground in Congress is quickly rendering this plan obsolete and I fear an even more sinister plan is being hatched by Bill Thomas (and Tom Delay?) in the House.

The obstacle the GOP faces in selling SS reform/privatization is the transparency of the program itself.  Revenues in, payments out, its fiscal health are all tracked separately, openly for all to see.  Transparency is not the GOP's friend.  

Now, as this article in the Washington Post indicates, Thomas and Rep. Jim McCrery (R-La.), chairman of the Ways and Means subcommittee on Social Security, are looking to merge Social Security reform with tax reform so as to eliminate SS transparency, with the following sinister possibilities:

De-linking Social Security from the Payroll Tax -- The idea here is to bring Social Security revenues and expenditures into the general budget process, eliminating the shell game of surpluses, IOUs etc.  There are a couple of obvious problems with de-linking Social Security from a dedicated funding. On a micro level it essentially eliminates the current formula whereby specified payments in to SS result in a guaranteed payment back at retirement.  That payment in/benefit out link will be completely broken. On a macro level, de-linking a dedicated revenue stream makes it much easier to scale back benefits since there will no longer be a revenue side of the balance sheet for comparison. Of course, de-linking the payroll tax is only the first step toward...

Elimination of the Payroll Tax -- Or, more precisely, elimination of the employer portion of the payroll tax.  With SS on budget financed from the general fund, the payroll tax itself become anachronistic.  A new "tax simplification" to streamline how government revenues are generated would eliminate the payroll tax -- and with it, the eliminated employer 6.2% would necessarily have to be recouped by, you guessed it, general income taxes on wages.  Of course, fat chance the 6.2% employer savings would pass through to wages.  Finally, merging of SS into the general budget without dedicated revenues and defined benefits reopens...

Private Accounts to Replace Social Security -- Because expansion of private accounts would no be longer linked to payroll tax/SS revenues, private accounts could be greatly expanded without any direct link to harming SS.  Naturally, once private accounts have been expanded there could then be a corresponding reduction in SS benefits. Josh Marshall notes in his analysis of the Post piece:

...Democratic Social Security mavens Sperling, Orszag and Emanuel, who say this new tack from Republicans is a good thing. They then go on to lay out the Democrats position. For them, it's private accounts so long as they're on top of Social Security rather than carved out from Social Security revenues.

Of course, in this brave new GOP world there is no more "on top of" or "carved out."  Support for expansion of IRAs, 401ks, etc. separate and distinct from a separate and distinct Social Security program is not what the GOP has in mind.

Democrats Sperling, Orszag, Emanuel and all of us had better open our eyes.  Defeat of Bush's original vision, though commendable, is only going to result in new fights over equally, or even more sinister, GOP initiatives. Beware of Bill Thomas's assistance in supposedly killing the Bush SS privatization plan, only to use tax reform as a means of enacting SS privatization anyway.

(Cross-posted at MyDD)