11/16/2010 10:45 am ET | Updated May 25, 2011

We Don't Need Your Help "Saving" Social Security

In Sunday's New York Times, President Obama's former budget director, Peter Orszag, praised Obama's off-the-rails Fiscal Commission for tackling Social Security, saying the co-chairs' plan to slash benefits in response to a modest and distant shortfall was better than privatization. Orszag's caveat was that he'd prefer to meet halfway on benefit cuts and revenue increases rather than relying mostly on benefit cuts, as conservative Democrat Erskine Bowles and very conservative Republican Alan Simpson propose.

For those fooled into believing that the midpoint between the two parties must be a reasonable compromise, it's important to recognize that Democrats seem to now prefer to compromise in advance, whereas Republicans stake out extreme bargaining positions like privatization knowing most voters aren't paying attention and don't view these as credible threats. And while Republicans maintain party discipline by purging moderates, Democrats stifle their base by defining the range of "serious discussion" to exclude anything that isn't already a compromise. Hence, in a related column two weeks ago, Orszag accused the left of "strident opposition to any serious discussion of Social Security reform," because they weren't willing to meet the Republicans halfway to Mars.

"No more benefit cuts" is actually a middle-ground position, since benefits were already cut back in the last Social Security overhaul in 1983. As a result of these cuts and the shift from secure pensions to 401(k)s, younger Americans are more likely to face a drop in living standards when they retire than their parents, the first such reversal in Social Security's history. Under normal circumstances, Democrats should be seeking to reverse the 1983 cuts, not add to them.

Progressives aren't opposed to a serious effort to assure long-term solvency, but we do oppose a rush to enact a back-room deal that will hurt middle-class retirees. There's plenty of time to get this right, since the Social Security trust fund is still growing and will last through the peak of the Baby Boomer retirement. Anyone who has ever sat through a vacation timeshare spiel should recognize that false urgency is a sure sign of a bad deal.

Progressives support a range of options, most of which center around raising or scrapping the taxable earnings cap. Earnings above $106,800 are currently exempt from the Social Security payroll tax, one of the reasons Warren Buffet faces a lower tax rate than his secretary, as he has been good enough to point out. Growing earnings inequality has eroded Social Security's tax base and is one the main causes of the projected Social Security shortfall, accounting for roughly half the gap that has emerged since the system was last restored to long-term balance.

Scrapping the cap altogether would more than close the projected shortfall, which is just 0.6% of GDP over the next 75 years. Surveys have repeatedly shown that Americans across the political spectrum strongly favor lifting the cap. A variation is eliminating the cap on the employer side and raising it to cover 90% of earnings on the employee side, which would eliminate around three-fourths of the projected shortfall while maintaining the historic link between employee taxes and benefits.

The Bowles-Simpson proposal does include a very gradual increase in the cap to cover 90% by 2050 -- phasing it in slowly in order to "prevent rapid buildup of the trust fund." In other words, we shouldn't raise revenues to fix the problem because that would raise revenues and fix the problem. (You can't make this stuff up!)

What galls Orszag is that progressives aren't in a big hurry to reach a compromise on Social Security with a Democrat in the White House and Democrats controlling the Senate. He's right to interpret this as a vote of no confidence, hardly surprising when you consider that the president set up this commission and Orszag, his former budget director, is singing its praises, even after the co-chairs released a deficit reduction plan that caps revenues and reduces taxes on the wealthy.

With such a weak team at its head, some Social Security advocates are willing to bet that a better opportunity to address the projected Social Security shortfall will come up before the trust fund is exhausted in 2037. Even if that doesn't happen, Democrats would be wise to let Republicans lead the attack, and stick to their historic role as defenders of this extremely popular program.