Wednesday, December 22, 2004

How the left can make the Social Security situation worse

1. They can suggest a worse alternative - the left realizes just being against Republican proposals and for the status quo will not seem very forward thinking. One proposal is to suggest an incentive system for "private retirement accounts outside of the Social Security system so that the debate is not between 'doing nothing' and 'the Bush plan to fix Social Security' but between the Democratic plan to give you new ways to save for retirement and the Bush plan to dismantle a savings instrument you already have."

The problem is what kind of incentive would be created. An expansion of the IRA tax deduction is regressive, because increased income tax deductions provide proportionally more money to people who pay higher income taxes, i.e. the wealthy. A tax credit, which is a dollar-for-dollar reduction in taxes for retirement savings, is not regressive if it includes an Earned Income Tax Credit for those too poor to pay income taxes, but it's expensive and will add to the budget deficit in the same way the Bush plan would add to the budget deficit. A tax credit accompanied by a tax increase on the wealthy to pay for it would be a good idea. Just as proposing a worse alternative could make things worse, proposing a better alternative could make things better. Of course, it doesn't fix the moderate-sized, long-term problem Social Security probably has.

2. They could end up fighting a good idea proposed by the Bush administration. This is a very low likelihood, but we can't completely eliminate the possiblity that Bush will come up with something that isn't completely awful. Two of my favorite blogs, Washington Monthly and Talkingpointsmemo (and many others), are trying to make opposition to privatization a litmus test for Democrats, but I think that should only be done for privatization that fails certain criteria, rather than a blanket opposition. Hard to believe I'm coming out to the right of them on this issue.

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