Will Republicans Rule Out Tax Hikes for Social Security Reform?

After Republicans were routed in the midterm elections, President Bush indicated he was interested in reaching a compromise with congressional Democrats on Social Security reform.

Before the election, on the November 2 edition of CNBC’s “Kudlow & Company,” White House Spokesman Tony Snow had not ruled out a tax increase as part of a Social Security deal.

Larry Kudlow introduced the subject with a long question to Snow: “There are rumors now that Treasury Secretary Henry Paulson, who was in consultation, I guess, with House and Senate members on both sides of the aisle … might be willing to accept an increase in the top personal tax rate and maybe an increase in the taxable wage base in order to get an entitlement compromise. Can you squash those rumors?”

“No, I can’t,” said Snow. “I don’t even know about what’s going on in … I know that Secretary Paulson is, in fact, trying to take on the entitlement problem because the overhang on entitlements is something that’s unsustainable. And the President is absolutely committed to dealing with Social Security and Medicare. And he doesn’t care if he has to be the heavy between now and the time he leaves office.”

Trading a tax hike for Democratic support for a Social Security reform plan is not a new strategy for the White House. Last year, when President Bush was promoting Social Security reform—a good and necessary thing—he indicated he was open to increasing the level of income subject to the payroll tax as part of a reform package. That would amount to a massive tax increase for many middle-class Americans.

HUMAN EVENTS asked Republican senators last week if they would rule out raising taxes as part of a Social Security reform deal.

The President said he was interested in tackling Social Security reform in the coming year. Would you rule out raising taxes to do that?

Sen. John Ensign (R.-Nev.): Well, I will. That’s pretty easy for me.

The President is committed to reforming Social Security in the next year. Do you think you would rule out raising taxes or cutting benefits to do it?

Sen. Charles Grassley (R.-Iowa): I do think we need to look at Social Security in ways of reforming it for future generations. If we get after it early, I don’t think that we do have to raise taxes. We just need to hold down the rate of spending. The longer we let this linger, the more likely we are getting to the point where we will have to cut benefits and raise taxes, but I think, right now, if we just reduce the rate of increases, we can begin to bring it under control.

Do you think now with the Democratic Congress there will be more of a likelihood that the President will want to compromise and do those things in order to get reform?

Grassley: I think the President, you’ll have to talk to the President about that. But I know my position is that as a member of the Budget Committee that these long-term entitlement programs, all of them we heard in testimony and in committee, time and time again, they are unsustainable and something needs to be done.

The President said he would be making another push for Social Security reform in the coming year. Would you rule out any plan that increases taxes or cuts benefits?

Sen. Judd Gregg (R.-N.H.): That would be fairly foolish wouldn’t it? If you don’t start with everything on the table, you don’t make any progress at all. It’s got to be bipartisan. We know we have to do Social Security reform, and it has to be bipartisan and everything has got to be at the table.

The President indicated he is committed reforming Social Security in the next year, but so far, hasn’t ruled out raising taxes to do it. Would you rule that out?

Sen. Mitch McConnell (R.-Ky.): There haven’t been any Democrats willing to talk about this yet. Last year, when the President kicked this discussion off, there were four or five Republican senators in my office who were deeply interested in the issue with different approaches to it, and I recommended that they go out and find any kind of Democrat to support any plan with or without personal retirement accounts, which became the hot-button issue. At that time, there was not a single Democrat willing to support any proposal of any kind, whether it included, as you suggested, a tax increase, a benefit cut, or anything.

I don’t know if they want to talk about unquestionably the most important government program for the next generation, the most in jeopardy. We’ll see if they are willing to talk. But I think, at least at the beginning, we need to not lay down any particular markers in order to get the conversation going.

Obviously, raising taxes would be my last choice, but I don’t want to go out making demands before we even begin to talk. We haven’t even been able to get them to talk about anything. If I were in their shoes, this might surprise you when I tell you this, but if I were in their shoes, knowing the unfunded liabilities that we have in Social Security down the road, I would rather try to solve the problem now while there is a Republican in the White House rather than keeping on kicking the can down the road to when they have the White House and all of a sudden the problem has gotten dramatically worse and then they have to deal with it. So, I don’t know what their attitude is going to be. I guess they won’t be able to do anything about it, and we won’t even end up in a discussion.

The President said he is committed to doing Social Security reform in the next year. Do you think there will be a willingness to raise taxes or cut benefits to do that with the Democratic Congress? Would you rule out raising taxes or cutting benefits, or do you think that needs to stay on the table?

Sen. Jeff Sessions (R.-Ala.): President Bush highlighted the long-term problem of Social Security, which, unfortunately, resulted in no benefit to the system, no change at all, but had the by-product of making senior citizens and Americans think the economy was doomed and Social Security was going to be an utter failure and go bankrupt. All of which is not going to happen, but Social Security needs to be improved. It really does. It’s heading in a bad direction for the long term, and we got the worst of both worlds. We got no improvement, and we got an image that the economy and everything was in shambles. But the economy is doing well right now. I think that’s part of the reason people thought we weren’t doing well, because we were mixing the long-term with it.

Do you think there’s a real chance at reforming it?

Sessions: I don’t know. The Democrats are almost religiously committed to no change in Social Security, and you’d have to have 60 votes to pass anything.

The President said he is committed to reforming Social Security in the coming year. Will you rule out any plan that does it by raising taxes or cutting benefits?

Sen. John Sununu (R.-N.H.): I don’t want to increase taxes, so I would be opposed to proposals that increase taxes. I’ve been a strong proponent of personal accounts, and I like giving individuals more control over what they do pay in taxes. I would hope that any serious proposal would include that as a provision.

You had a plan to reform Social Security through personal retirement accounts. Are you going to bring that back? What are the chances of that?

Sununu: Yes, I have a bill with [Rep.] Paul Ryan [R.-Wis.].

What’s the status?

Sununu: Well, we’re working on it. Look, last session we dealt with it and had a Democratic caucus that had no interest in bringing any bill to the floor or having any debate in Congress. And I guess the question is, is that still their position? They don’t want to talk about Social Security, they don’t want to have a bill on the floor, and they don’t want to deal with it—that’s been their position in the past.

It seems like if there was going to be reform, in this Congress, it might come in the form of a tax raise. White House Spokesman Tony Snow wouldn’t rule it out.

Sununu: I’m not speaking for the President, but that’s not a good way to address the problem. That does not deal with the underlying weakness in the system.