Wednesday, July 09, 2008

Candidates gear up to debate social security

If social security is a “third rail” (the kind that pedestrians used to have to step over on the Long Island Railroad back in the 1940s), both John McCain and Barack Obama are willing to tap it gingerly, maybe with insulated gloves, the kind that utility employees have to wear.

McCain still favors partial and gradual privatization, with tax-exempt but regulated private accounts that will provide retirement income outside of social security’s labyrinthine POMS rules (like annual earnings tests). To pay for the loss of new income, McCain might raise social security retirement ages even further or lower COLA increases. He will face problems in that corporate America often expects salaried professionals to be ready to retire at 62, or even earlier (look at airlines pilots). Much more would have to be done to make it easier for seniors to continue working at meaty jobs (not just selling things or schmoozing).

Barack Obama is wants to increase social security revenue by increasing the taxable base, but insert a “doughnut hole” between $102000 and $250000. Early in my career, I used to look forward to not having social security tax withdrawn during the last couple of months of the year. Others want to include all income as taxable. At the extreme end of thinking could be means testing of benefits, which would make social security more like a New Deal middle class “welfare” program as it was conceived originally, where some beneficiaries had never paid in (which is one of the actuarial problems). People have started think of social security income as a bit like a life annuity (with survivorship).

The news story appeared on p A1 of the July 8 Washington Post, by Perry Bacon, Jr. “Candidates Diverge on How to Save Social Security,” link here.

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