RALEIGH – I just got finished reading a paper by Jagadeesh Gokhale, senior economic adviser at the Federal Reserve Bank of Cleveland, and it got me to thinking about how today’s political liberals don’t care about the poor.
That get your attention? I am quite serious. As Gokhale points out (see for yourself here) the fiscal crisis facing the Social Security program has much more dire consequences for low-income households than for middle-income or upper-income households whose retirement futures are not solely dependent on government benefits. By 2016 – less than a generation from now – Social Security will start running a deficit. Benefits will cost more than payroll taxes will bring in (forget the so-called Social Security “trust fund,” which doesn’t change this fact one iota).
If the resulting budgetary pressure results in either higher payroll taxes or lower benefits, poor folks get disproportionately shafted. Their payroll tax liability far exceeds their income tax liability (if they have any). And they typically don’t have savings, 401(k)s, or pensions to make up the difference if benefits get axed. Low-income workers also tend to die earlier, so Social Security harms them by forcing their retirement security to be annuitized – parceled out in regular increments with the principal retained by the government – instead of building a nest egg that can be inherited.
So privatizing Social Security, as President George W. Bush’s reform commission (headed by liberal Democrat and former Sen. Daniel Patrick Moynihan) has proposed, would confer proportionally greater benefits on the very “working people” that liberals purport to represent in the public policy debate. As Gorkhale says, when compared with anything other than large-scale income tax funding of Social Security – which liberals fear would weaken public support for the system by exposing it as simple wealth-redistribution – “Social Security privatization becomes the truly progressive option for reform.”
So if liberals really care about the poor . . .