Will McCain Fund His Corporate Tax Cuts With Massive Cuts In Social Security?»

Now John McCain has made it very clear that he plans to balance the federal budget by the end of his second term.

Criticism has been broad, coming from Paul Krugman, the Wall Street Journal, the American Prospect and Robert Bixby, director of the non-partisan Concord Coalition.

To balance the budget, McCain would need to cut federal programs down to a level they haven’t seen since 1976–decreasing spending by programs like the Department of Education, Department of Agriculture and Department of Labor over 40% if you hold constant defense spending, which the senator has agreed not to cut. No president would propose and no Congress would pass such draconian cuts.

So how will McCain balance the budget? James Pethokoukis of U.S. News thinks he has the answer: massive cuts in Social Security benefits. The cuts Pethokoukis outlines would not only eliminate the Social Security shortfall but also generate $2.9 trillion to help pay for McCain’s tax cuts. He points to McCain aides’ suggestions that he might raise the retirement age and cut the growth in benefits over time.

Implementing those two solutions would actually result in more money going into Social Security than is needed to fund scheduled benefits. There would be money left over to help reduce taxes or increase spending on education or energy or whatever […] Now if you did a combination of price indexing starting in 2015 and extended the retirement age to 70 by 2050, that $5 trillion deficit turns into a $2.87 trillion surplus.

If Pethokoukis is right, McCain is attempting to do something that no president has ever done before: using payroll tax revenue to fund other functions of government. The result would be huge cuts in the program that lifts 13 million seniors out of poverty and a shift of the tax burden from progressive corporate taxes onto regressive wage taxes.

The gaping whole in McCain’s budget plans has left us all to speculate. But it cannot be a good sign for the McCain campaign when even McCain sympathizers think they detect a plan for massive cuts in arguably the most popular government program in history.

The Castor Oil Caucus: Ecrasez l’entitlements!»

Bipartisan worthies from the Brookings Institution, the Heritage Foundation, and elsewhere have identified a great threat to the nation’s future. “Without addressing” this problem, we are told, “our newly elected leaders in 2009 will have little chance to meet the challenges that Americans face in a world of intense global competition and rapidly changing technology.”

The health care crisis? The dropout crisis? Global warming?

Wrong, wrong, wrong.

The problem is “automatic spending growth and the deficits they engender.” More specifically, the problem is “projected increases in spending for Medicare, Medicaid, and Social Security.” To address this crisis, the authors propose an automatic mechanism that forces Congress to cut the benefits in these programs, to raise taxes, or to cut spending within 5 years.

Committed to “hard choices” and “responsibility,” the authors stand ready to slash benefits for the old, the poor, and the infirm. But is this really necessary? Brookings’ own Henry Aaron, a senior fellow in economic studies, disagrees:

A CONSENSUS HAS EMERGED AMONG BUDGET ANALYSTS that potentially ruinous deficits await the nation unless current policy is changed soon and fundamentally: The baby-boom generation is about to start retiring; the nation is committed to paying the elderly and disabled pension and health benefits—Social Security, Medicare, and Medicaid—that are unaffordable; and demography and budgetary overcommitment threaten fiscal meltdown. A political recipe to avoid this specter seems to follow: The nation must cut aid to the aged, disabled, and poor; reduce all other public spending; raise taxes; or do some combination of all three.

This view omits key information. As a result, the political recipe mentioned above is misguided. The United States must reform its health care financing system, public and private. If it does so, there will be no remaining long-term fiscal problem. Reducing current budget deficits is also desirable. But the long-term problem is health care spending, private and public, not a general budget shortfall or entitlements. […]

Thus, a three-premise syllogism emerges: (1) Near-universal coverage is an essential precondition for controlling health care spending. (2) Rising health care spending is the only source of long-term budget shortfalls. (3) Controlling spending under public-sector health care programs cannot proceed independently of control of private-sector health care spending. Therefore, extending health insurance coverage to nearly everyone is a necessary precondition for dealing with long-term budget challenges.

The authors make no proposals to extend health insurance to “nearly everyone” — or anyone. Their motto might be: Pain, no gain.

Saving Social Security From Bush And McCain»

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

If you’re in Generation X, don’t give up hope — Social Security is not going bust. That’s news from the annual report from the Social Security and Medicare trustees.

The latest projection is that Social Security will pay full benefits for more than 30 years. After 2041, it will pay only 78 percent of promised benefits. The projection for the long-run shortfall has fallen 10 percent since last year.

The report is an important reminder that the program is not in a crisis. While we need reforms to extend the life of Social Security, we do not need to panic and adopt massive benefit cuts. And the last thing we need is the radical step of privatization — as George Bush and John McCain want -– that would cut benefits and shorten the program’s life.

Instead, we can save Social Security by setting the right priorities. Its deficit projected into the infinite future is 1.1 percent of the economy — about the same size as John McCain’s tax plan. Saving Social Security would be a better use of resources than a $2 trillion tax plan that delivers 58 percent of its benefits to the top 1 percent of taxpayers.