More thoughts on a possible bait and switch

The more I read about a possible bait and switch, the more I see two lines of distinction regarding beliefs about it. One faction believes it is a planned event. The other thinks that, while not a conscious bait and switch, if the Social Security Privatization scheme fails, this option (privatization on *top* of Social Security that could allow a whole slew of tax shelters only Norquist and the rich can truly appreciate) is a handy and entirely do-able fallback.

While reading this article by Noam Scheiber, one phrase in particular struck me:

Put that all together and what do you get? I think you get a Social Security bill that has lots of convoluted, Thomas-inspired, hand-waving--possibly including a change to the way Social Security benefits are funded (i.e., the payroll tax)--that creates private accounts but in a way that hides the fact that the numbers don't add up.

(bold emphasis mine)

So, follow this logic, and see if you agree with me on yet another possible route as to where this might be going. No one's talking about it yet, so I'm out on my own here.

Let me offer one more possibility to the conscious vs. serendipitous bait and switch Social Security privatization/tax shelter scenario. What if, by declaring that 'the sky is falling' in regards to Social Security, Bush declares, in yet another gesture of bipartisanship, to not privatize Social Security, but that where Social Security gets its' funds must be modified to fend off 'impending doom'?

To get the full scope of why this matters as much as it does, it is imperative to read Kevin Drum's article about it (the best, simplest explanation I've found yet), but I will also quote the section I'm referring to here to explain my point:

Social Security is funded by payroll taxes. In 1983, Alan Greenspan headed up a commission that recommended saving Social Security from imminent doom by raising those payroll taxes to cover expected increases in Social Security payouts. But there was a twist: Greenspan recommended raising payroll taxes above what was required to actually pay current benefits to retirees, with the resulting surplus used to buy treasury bonds that would be piled up each year in Social Security's trust fund. And since these bonds were sold to the trust fund by the federal government, this means that the federal government got a big chunk of extra money every year for use in the general fund.

Under this scheme, payroll taxes were sufficient to cover payouts plus bond purchases until about 2018. Then, from 2018 to 2042, when payroll taxes would no longer be enough to cover payouts, the difference would be made up by cashing in the bonds in the trust fund. In other words, the feds would tap into the general fund to give back all the money that Social Security had handed over between 1983 and 2018. This money would come from the same place all general fund money comes from: income taxes.

Still with me? Here's what this means:

• Between 1983-2018, this plan calls for payroll taxes to be higher than they need to be to cover payouts to retirees. However, because the surplus payroll taxes are handed over to the feds, it means income taxes are lower than they would otherwise be.

• Then, between 2018-2042, payroll taxes will be less than they need to be to pay benefits to retirees. However, the difference will be made up by higher income taxes, which will be used to pay off the trust fund bonds.
  

Payroll taxes are paid mostly by the middle class and the poor. Income taxes are paid mostly by the well off.

So: for 35 years the middle class and the poor pay excess payroll taxes and the well off get a break on their income taxes. However, for the following 24 years the middle class and the poor get a break on their payroll taxes and the well off finance it by paying higher income taxes.

Now, this may sound like a dumb idea to you, but that was the deal. The bottom 80% take it on the chin for a few decades, followed by a couple of decades in which the well off get socked.

But suppose — as conservatives are laying the groundwork for — that Bush decides the trust fund is a mirage, just a giant IOU from one part of the government to the other. And as part of his "reform" plan he proposes a complex scheme that, when stripped to its essentials, entails doing away with the flim flam of that illusionary trust fund and the higher income taxes it will require when 2018 finally rolls around. What would that mean?

It would mean that the middle class and the poor got suckered into overpaying their taxes for three decades, and then when the bill came due the well off ducked out of their end of the bargain.

(bold emphasis mine)

Wouldn't it be ironic if, by tenderizing the Congress and the public into being willing to do most anything to protect Social Security, Bush manages to insure that payroll taxes *continue* to pay for Social Security (and perhaps even increase the percentage) and that the income tax portion that the well off should begin paying in 2018 gets deferred, possibly indefinitely?

This means that Bush would insure that the poor and middle class would continue to pay into a program that the poor and middle class are most likely to need and depend upon, and that the rich, who won't need it because of their own financial surplus, also don't have to pay for it - ever? Tell me this isn't the classic 'rich getting richer, poor getting poorer' scenario.

Add insult to injury, and see how easily relieved Democrats give Bush privatization accounts on top of Social Security - yet another benefit truly appreciated by the rich, and you see yet another way to screw the average American.

Will this be how it plays out? Hopefully not. Is it possible? Anything can happen. The important thing for Democrats now is to stop being played and not let themselves get suckered. After all, anything Bush offers is likely to be no deal for FDR's New Deal legacy.