Should Social Security be Part of Fiscal Talks?

Top Democrats and leading progressives are arguing that Social Security shouldn't be part of negotiations over the fiscal cliff. As Senator Richard Durbin plans to say in a speech later this morning:

Social Security doesn't add a penny to the debt and should not be part of any deficit reduction talks. We can and must do what we can to ensure its solvency for another 75 years, but that is another topic for another time.

Likewise, writing in the Huffington Post yesterday, my colleague Bob Kuttner called Social Security (and Medicare) "extraneous" to the fiscal challenges at hand. Moreover, Kuttner writes:

cutting Social Security and Medicare for the sake of an arbitrary and needless budgetary reduction of $4 trillion and as a "solution" to an entirely contrived fiscal crisis is bad policy. It is bad economic policy and worse social policy. And for Democrats, it is dumb politics. If Republicans want to be the ones to attack America's two most valued social programs, Obama should let them go right ahead -- until they march off their own fiscal cliff.

There is certainly a logic to the viewpoint that Social Security should be off the table in the fiscal negotiations. Durbin is right that Social Security is not responsible for the deficit and Kuttner is right that Democrats run political risks by turning against popular programs.

But there are at least two reasons for including Social Security in the fiscal talks.

First, it is pretty much inconceivable that any fiscal bargain amid divided government will not include spending cuts of some kind, and cuts to Social Security and Medicare benefits for the affluent, phased in over time, are among the least painful of possible options.

Let me explain. While my own view is that the best solution to deficits is to let all the Bush tax cuts lapse and not cut spending at all, beyond cuts made last fall, nobody is talking about that option. I also like Kuttner's suggestion, which is to just raise taxes on the wealthy -- both by rolling back the Bush tax cuts for high earners and taxing capital gains and dividends as regular income. This would raise some $2 trillion, which the Center for Budget and Policy Priorities argues would be enough deficit reduction to stabilize the national debt. CBPP also points out that last year's budget cuts -- if fully enacted -- will result in $1.7 trillion in deficit reduction.

So one could certainly say that already enacted cuts, along with tax hikes on the rich, are plenty of deficit reduction for the moment. But as a matter of politics, that will never fly, and most Democrats -- including liberals like Durbin -- concede that some additional spending cuts must happen. Earlier this month, for example, a group of liberal Senators signed a letter to Obama demanding that any fiscal deal be split evenly between revenue increases and spending cuts.

The question, then, is what kinds of cuts can progressives best live with? Further defense cuts, for sure. The Project on Defense Alternative makes a strong case for deeper cuts and a smaller military. But that would be a hard sell right this moment given the pushback to Pentagon cuts already enacted into law by sequestration. Progressives need to circle back to defense another time.

As for non-security domestic discretionary spending, progressive advocates are already freaking out about the deep cuts in this category enacted by sequestration -- cuts that are likely to hit every part of government from the national parks to the Securities and Exchange Commission. Are there further domestic cuts that progressives could live with? Probably. But we're not talking big money.

That leaves the big entitlement programs. But no progressive should be willing to go along with cuts to Medicaid, food stamps, SCHIP, or other entitlements that mainly benefit the poor. And the only entitlement spending that goes to the affluent are benefits paid out by Social Security and Medicare. Kuttner says that the Social Security payroll tax should be raised, and he is right. But such additional revenue won't satisfy the political demands for significant spending cuts.

The beauty of cutting Social Security and Medicare benefits for the affluent is that Democrats can make higher earners pick up nearly all the tab for deficit reduction -- first through tax hikes and then through benefits cuts that would hit pretty much the same people. Also, such cuts could be phased in slowly, avoiding undermining the fragile recovery.

A second reason to put Social Security on the table is that while the program is not in crisis, it does have problems that do need to be dealt with eventually. As the Center for Budget and Policy Priorities said not long ago, policymakers:

ought to act soon to put the program on a sound footing for the long run. Although the date when the program can no longer pay full benefits is still more than two decades away, prompt action would permit changes that are gradual rather than sudden, and allow people to plan their work, savings, and retirement with greater certainty.

Now is as good as time as any to make adjustments.