Social Security too hot to touch? Not in 2008

Mr. Obama’s proposal would increase the payroll tax in a way that, to hear his critics tell it, could transform Social Security from a purely social insurance program into one that also helps redistribute income from the rich to the poor. But while his plan has taken heat from the McCain camp, it has raised fewer hackles within Democratic circles.

To begin to attack the problem now, Mr. Obama would subject all wages above $250,000 a year to the payroll tax. That concept has been nicknamed the “doughnut hole” because it would exempt wages between $102,000 a year, the current ceiling for contributions, and $250,000.

“What Barack Obama is doing is different from what people running for president traditionally have done,” Jason Furman, Mr. Obama’s chief economic adviser, said in an interview. “He’s putting an option on the table, not just saying he wants to work with Congress, but also saying what he wants to work on.”

While more specific than Mr. McCain’s plan, the Obama proposal raises questions. The tax rate Mr. Obama would apply to wages over $250,000 has not been established, but it would be lower than the combined 12.4 percent that employees and employers now jointly pay. “We’ve studied a range of plans with combined employer and employee rates between 2 and 4 percent,” Mr. Furman said.

By itself, the Obama proposal will not guarantee the solvency of Social Security. Andrew Biggs, a Social Security expert at the conservative American Enterprise Institute, calculates that the plan would reduce the gap by 15 percent to 43 percent, depending on the level of the surtax, which he complains “is being fuzzed up to prevent people like me from running the numbers.”

It is also not clear whether those paying the additional payroll tax would receive more benefits, as the system now mandates. Mr. Furman said “it is factually inaccurate to say that a decision has been made to de-link taxes from benefits,” because “that is something you’d want to work out with Congress.”

But Pat Toomey, a former Republican congressman who is president of the Club for Growth, was skeptical, saying that there is no point to having the doughnut hole “unless you’re going to redistribute wealth.”

Mr. McCain and his surrogates have also sharply criticized the Obama proposal, portraying it as a new soak-the-rich tax. Lawrence B. Lindsey, who as Mr. Bush’s chief economic adviser was one of the architects of the 2001 tax cuts, has even argued that Mr. Obama’s plan would turn Social Security into “just another welfare program.”

But when Mr. McCain was asked in February 2005 in an interview on NBC’s “Meet the Press” if he could support the doughnut hole concept, he offered a cautious endorsement.

“As part of a compromise, I could,” he said, so long as it included “other sacrifices, because we all know that it doesn’t add up until we make some very serious and fundamental changes.”

And Mr. McCain’s former adviser offers guarded praise. “The doughnut hole is not a fix in itself,” Ms. MacGuineas said, “but it can be one piece, depending on what the other pieces are. I happen personally to think you have to have a balanced solution, with some revenue increases and some spending cuts.”

This article, Social Security Too Hot to Touch? Not in 2008, first appeared in The New York Times.

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