The Ryan budget, Part I: Social Security

House Republicans today released a budget plan drafted by U.S. Rep. Paul Ryan, chairman of the House Budget Committee, that claims to cut government spending by $6.2 trillion over the next decade, lower the top tax rate on the wealthiest of Americans to 25 percent, cut the debt by $4.4 trillion, raise real GDP by $1.5 trillion over the next decade, restore Social Security and Medicare to solvency and bring the unemployment rate down to 4 percent by 2015.

U.S. Rep. Paul Ryan (AP photo)

Other than that, it doesn’t really promise much.

Given the importance of this debate, I thought I’d start a series of posts looking into those and other claims. And I want to begin with Ryan’s plan for saving Social Security, in part because it’s pretty quick and simple.

You see, the much-ballyhooed “Path to Prosperity” doesn’t even address the issue. Here are its recommendations regarding Social Security (p.47):

“– Force policymakers to come to the table and enact common-sense reforms to keep the program solvent for current beneficiaries and make it stronger for future generations. Social Security must be reformed to prevent severe cuts in future benefits.

— Set in motion the process of reforming Social Security by establishing a requirement that in the event that the Social Security program is not sustainable, the President, in conjunction with the Board of Trustees, must submit a plan for restoring balance to the fund. The budget then requires congressional leaders in both the U.S. House of Representatives and U.S. Senate to put forward their best ideas as well.

– Move the conversation to solutions that save Social Security, thus providing the space to forge a bipartisan path forward and ensure that Social Security remains a key part of retirement security for the future.”

In effect, it is merely a plan to someday force other people to come up with a plan. To my mind, that falls a little short of bold and forthright.

In the budget document, Ryan does attempt to set the parameters for debate over Social Security’s future, and he makes two essential points.

First, he takes tax hikes off the table as any part of the solution. More specifically, he opposes any attempt to levy Social Security taxes on income above the current FICA ceiling — set at $106,800 in 2010 — claiming that such a move “would create a significant drag on economic growth, job creation, productivity and wages.”

Second, Ryan dismisses the notion that Social Security has a trust fund it can draw upon to pay future benefits, saying the claim is “derived from dubious government accounting.”

“From 1983 to 2011, the trust fund collected more in Social Security taxes than it paid out in Social Security benefits,” he acknowledges. “But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security.”

In other words, he argues, the $2.6 trillion paper surplus doesn’t exist. The funds that working Americans thought they had been socking away through their weekly FICA taxes in preparation for retirement have already been spent on other things, and the idea that FICA taxes were truly separate from income taxes, with the revenue being set aside for separate purposes …. well, that was merely an unfortunate illusion.

Sorry about that. You were betrayed; get over it and suck it up.

However, there’s a fundamentally important contradiction between Ryan’s two points, a contradiction that strikes at the heart of fairness and equity.

If the Social Security surplus really doesn’t exist, if it was just an illusion that government has no obligation to honor, then the extra FICA taxes that working and middle class Americans have been paying for the past 28 years were also an illusion. In effect, since the money was being siphoned off to fund general government, those taxes were just an income tax by another name. That’s the real effect of Ryan’s claim.

However, if you accept that harsh reality, how do you justify exempting income above $106,000 from those taxes? If the money really isn’t going into Social Security, then why do working and middle class Americans have to pay it while more affluent Americans are largely protected?

Ryan and his GOP colleagues can’t have it both ways. They can’t justify the income cap on FICA taxes by claiming that the revenue is being set aside for Social Security, and then turn around and claim that it wasn’t being set aside for Social Security after all. There’s no consistency to those positions.

Well, let me take that back. There is one consistent thread between those two claims. The argument in favor of preserving the FICA cap protects upper-income Americans at the expense of the middle and working classes. Likewise, the argument that there is no Social Security surplus, and that benefits will have to be cut as a result, also favors upper-income Americans at the expense of the middle and working classes.

The path to prosperity indeed.

– Jay Bookman