As we reported in our three-part series on Social Security earlier this year, the notion of “privatizing” Social Security — that is, diverting some of the money that now flows into the Social Security system into private investment accounts — failed to receive significant support when President Bush proposed it at the beginning of his second term.
On Wednesday, Sen. John McCain told an audience in Grand Rapids, Michigan: “The Social Security system is going to go broke. It will not be there for present-day men and women who are working. And we have to fix it and we have to do it in a bipartisan fashion.”
McCain’s longtime position is that a bipartisan commission needs to be formed to address the challenges facing the Social Security system. He insists that a partial privatization plan must be among the options considered by such a commission.
It was an inconvenient week to be making this argument. The Bush plan (which was first proposed in the late 1980s by former Sen. Phil Gramm, a McCain friend and informal economic adviser) proposed giving people the option of investing some of their Social Security money in the stock market. Given the volatility of the market in recent days, this idea seems even more risky today than it did three years ago, and arguably incompatible with the fundamental concept of the program as a form of social insurance.
Not surprisingly, the campaign of Sen. Barack Obama pounced on this, with an ad running in the swing state of Michigan pointing out McCain’s past support for partial privitization. Mark Gaffney, president of the Michigan AFL-CIO, wrote in Friday’s Detroit News that McCain “would put stable retirement benefits in the same unstable market that has nosedived.”
Steve Schmidt, a senior advisor to McCain, told reporters on Thursday that the candidate has “not ever talked about outsourcing Social Security into the private sector. What people talk about with regard to personal accounts is giving the American people an ability to have a greater return on an investment. It could be bond funds, for example.”
Social Security is currently financed with a 6.2 percent payroll tax on all income up to $102,000. Sen. Obama has proposed that the tax should also be applied to income over $250,000. Earnings between those two figures would not be subject to the payroll tax under his plan.
It’s worth remembering that the system, as we showed in our series, is far from going broke (a contention that continues to be repeated by sloppy journalists, including MSNBC’s David Shuster on Thursday).
According to the 2008 report by the Social Security Trustees, if nothing is changed, the system will be able to pay full benefits to retirees until the year 2041. At that point, it will have to start reducing benefits, with recipients receiving 78 percent of their projected payments. Most analysts assert that the system can be shored up by raising the retirement age, and/or a modest payroll tax increase.
Update: Meanwhile, the online magazine Slate notes that Obama’s Web site has removed the following sentence, “[Obama] does not believe it is necessary or fair to hardworking seniors to raise the retirement age,” from its policy page on Social Security. Among new language is a statement that his campaign might consider raising payroll taxes on those making more than a quarter-million dollars a year:
“Obama does not support uncapping the full payroll tax of 12.4 percent rate. Instead, he and Joe Biden are considering plans that would ask those making over $250,000 to pay in the range of 2 to 4 percent more in total (combined employer and employee).”