TWO PERCENT OF GDP….Brad Plumer summarizes the Decembrist:
Mark Schmitt thinks that Bush actually has two goals in the great Social Security phase-out scheme. First, of course, is to raze the program to the ground. The second, though, is to paint the Democrats as hidebound defenders of the status quo, and the Republicans as the party of bright and shining reform.
I think that’s about right, and it’s a measure of how successful Republicans have already been at this that virtually the entire “responsible” commentariat accepts the need for Social Security reform. Even Ron Brownstein, a perceptive guy, offhandedly trashes “Democrats now piously denouncing any cuts in retirement programs” in his LA Times column today.
Now, if you want to argue for benefit cuts, that’s fine. If Social Security’s condition worsens over the next decade I could be talked into modest benefit cuts myself. But ask yourself this: why is it so universally and unthinkingly accepted that of course benefit cuts are necessary to bring Social Security into balance?
Suppose you accept the pessimistic assumptions of the Social Security trustees. Suppose their economic and demographic predictions are correct. What does it mean?
It means that the total cost of Social Security will rise from about 4.5% of GDP to about 6.5% of GDP over the course of the next several decades. In other words, even if all the gloomy scenarios are correct, here’s what it would take to keep Social Security benefits the same as they are today: an increase in taxes equal to about two points of GDP over the course of 30 or 40 years.
That’s nothing. And yet we’ve somehow come to live in a bizarro world in which a tax increase of two points of GDP over four decades is so unthinkable that of course we need to cut benefits. This despite the fact that Social Security benefits for low and middle income workers average about 40% of their pre-retirement income, hardly a king’s ransom.
How did we get to this point? How did we convince ourselves as a society that raising taxes by a small amount in order to keep Social Security benefits at a barely livable level is literally unthinkable?
Someday our children will look back on this era and wonder what kind of madness overtook us. Healthcare costs are spiralling out of control, we’re spending $100 billion a year on an unwinnable war overseas, the combination of budget deficits and trade deficits threatens to ruin us, and yet somehow what really matters is that we have to cut Social Security benefits today ? today! ? in order to avoid the mere possibility of a small tax increase decades in the future.
It’s madness. And yet we live in a time when madness has become conventional wisdom. I wonder what it will take to wake us up?