OPINION: McCain Digs Own Hole on Social Security - TheStreet

OPINION: McCain Digs Own Hole on Social Security

After backing down on private accounts, some may fear he'll flip flop on his opposition to new taxes.
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Sen. John McCain (R., Ariz.) stepped into controversy on Sunday by backing away from his previous support for private Social Security accounts and leaving himself open to charges of flip flopping on his opposition to new taxes.

When asked about creating private Social Security accounts, McCain responded that he favors "putting everything on the table and coming up with an answer." Does he support private accounts, higher taxes, or lower benefits? It's no longer clear.

McCain's difficulty in articulating a clear position underlines the complexity surrounding the Social Security debate. What can be done to fix it?

Social Security came into being as part of the "New Deal" authored by President Franklin D. Roosevelt in the 1930s. It was intended to offer social insurance to the elderly and provide a safety net. It has succeeded in this regard with very little overhead: less than 1 percent.

So, what's wrong with Social Security? In 1983, the Greenspan Commission, led by Alan Greenspan prior to his becoming chairman of the Federal Reserve, sat down to address the coming shortfall in Social Security benefits as the "baby boomer" generation neared retirement. The commission recommended that payroll tax proceeds be placed in a trust fund (or OASDI fund). Some say the OASDI doesn't exist because the government has borrowed from it to fund our federal deficit. Legally and practically, the OASDI will remain in place.

According to the most recent

report

by the Trustees of the Social Security Administration, the OASDI will start to pay out more than it takes in by 2017. In 2041, the OASDI will be gone. If nothing changes, benefits would be reduced to 75% of their current levels.

The Trustees recommend two solutions. They write:

"The projected actuarial deficit in the OASDI over the infinite future is 3.2 percent of taxable payroll (1.1 percent of GDP), or $13.6 trillion in present value terms. The system could be brought into actuarial balance over this time horizon with an immediate increase in payroll tax revenues of 26 percent (from 12.4 percent to 15.6 percent) or an immediate reduction in benefits of 20 percent, or some combination of the two."

Presently, no solution has made much progress in Congress.

Do politicians in Washington have the political willpower to make one of these difficult choices? The Democrats have long fought to maintain the integrity of Social Security and easily defeated President George W. Bush's effort to create private accounts in 2005.

It's no surprise that Sen. Barack Obama (D., Ill.) has consistently spoken about saving the program. He has proposed changing the payroll tax funding the OASDI, which applies only to the first $102,000 of income. He has said he would do away this cap, but would leave the details to be worked out by a bipartisan Congressional effort.

McCain faces a dilemma made worse by his latest statement about "keeping our options open." He made it sound as if he supports a Greenspan Commission style solution, which might propose a tax hike similar to Obama's proposal. Conservatives expressed outrage at his flip flop including a blistering

editorial

in the

Wall Street Journal

calling it a "Tax Blunder." He has appeased conservatives by pronouncing: No new taxes. That pledge has now come into doubt, sending tax cutting hawks like Grover Norquist into a tizzy.

McCain also has to be concerned about support from seniors who vote much more consistently than any other bloc. A Rasmussen

poll

in June showed that he enjoyed his largest favorability rating from this group than any other: 59% to Obama's 49%. Any mention of cutting or privatizing Social Security or Medicare benefits could cause them to throw their support to Obama.

Tucker Bounds, a McCain spokesman, fared no better when trying to explain McCain's statements on Fox News. He tried to spin McCain's new position by saying:

"When you're talking about the Social Security debate, you're really talking about a different type of debate..You're talking about bringing people together to form a compromise. We've seen in this last administration and we've seen time and time again throughout history of this issue, that if you want to make an honest effort to try and fix Social Security, you're going to have to put everything on the table, have an honest debate and come together with a real conclusion, a real solution."

The hole only gets deeper. McCain must quickly clarify exactly what he plans or face losing the support of both conservatives and seniors.