The president is vowing not to privatize Social Security

The president is vowing not to privatize Social Security, but to resolve its enormous cash flow problems permanently, he risks angering liberals who believe a solution can wait. Keith Hennessey on his options.

A Democratic split is coming on Social Security.
On one side is the president, who said Tuesday in Ohio, “I have been adamant in saying that Social Security should not be privatized and it will not be privatized as long as I am president…The population is getting older, which means we’ve got more retirees per worker than we used to. We’re going to have to make some modest adjustments in order to strengthen it… And what we’ve done is we’ve created a fiscal commission of Democrats and Republicans to come up with what would be the best combination to stabilize Social Security not just for this generation, but the next generation. I’m absolutely convinced it can be done.”
On the other side we have Paul Krugman, who wrote in The New York Times earlier this week, “The program is under attack, with some Democrats as well as nearly all Republicans joining the assault. Rumor has it that President Obama’s deficit commission may call for deep benefit cuts, in particular a sharp rise in the retirement age.”
If doing so is the only feasible legislative path to addressing this critical policy problem, will the president be willing to lead?
Krugman continues, “Social Security’s attackers claim that they’re concerned about the program’s financial future… Instead, it’s all about ideology and posturing… To a large extent they rely on bad-faith accounting. But [conservatives] receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic.”
While Krugman names Obama fiscal commission co-chairman Alan Simpson, he also is targeting Democrats such as fiscal commission chairman Erskine Bowles and House Majority Leader Steny Hoyer.
Let’s look at how a Social Security deal might come together, first in the president’s commission and then on Capitol Hill.
A few conservatives who say that personal accounts alone can fix Social Security will oppose any deal that includes changes to benefit spending promises or tax increases, so they’re on the outside no matter what. That group is small but could cause a little trouble by (incorrectly) promising gullible and nervous conservative members of Congress that a free lunch solution is theoretically possible.
For most Republicans, three things are important: permanently solving Social Security’s cash flow problem, not raising taxes, and allowing younger workers to voluntarily redirect some of their current payroll taxes into personal accounts. Republicans know these “carve-out” accounts are anathema to most Democrats and impossible with a Democratic president. To pick up enough Republican support to be viable, a deal must therefore significantly, if not permanently, address Social Security’s long-term cash flow problem and must not raise taxes. If a proposed deal includes tax increases, I think all but a few Republicans will walk away. To get a deal, Republicans might split evenly on carve-out accounts, but they won’t split on tax increases. The president gets a win by blocking “privatization” (carve-out personal accounts), while Republicans get a win by not raising taxes. The reduction in, if not elimination of, Social Security’s long-term financing problem would be a bipartisan win for which both sides would claim credit.
If I’m right about Republicans on personal accounts and taxes, Democrats will split. Many Democrats would naturally oppose a deal that only slows spending growth and does not raise taxes, even if that deal excludes the carve-out personal accounts they oppose.
Coppied by http://www.thedailybeast.com/blogs-and-stories/2010-08-19/obamas-social-security-challenge-anger-democrats-on-reform/?cid=bs:archive1