Ask any economist and many of the politicians and those that pay attention on the right what they say is the single biggest problem facing this country. The answer will likely be the unfunded liabilities of the federal government’s entitlement programs of Social Security, Medicare and Medicaid. Serious action needs to be taken now to keep those three programs from swallowing the entirety of the projected revenues of the federal government leaving no room for any of the other vital (and some not so vital) programs.

With that in mind, read this statement by Obama senior economics advisor Jason Furman (who I might add once proposed the same health care plan that Senator McCain now champions):

Obama is confident that we can come together to find a workable solution. He believes that one strong option to improve Social Security’s long-term solvency is asking people who earn more than $250,000 to pay a little more into the system. But Obama will not raise the retirement age or reduce Social Security benefits.

Economist Greg Mankiw (who gets the hat tip for the quote) points out that Senator Obama’s position of refusing to raise the retirement age is contrary to the opinion of the majority of economists.

Even as a student of basic economics in college I learned that there were three basic ways to fix Social Security:

  1. Raise taxes
  2. Raise the retirement age
  3. Cut benefits

I would also add partial privatization as an option, but it’s usefulness is quickly becoming nil. Economist and American Enterprise Institute scholar Andrew G. Biggs still believes that they are a good idea.

If Senator Obama is refusing to raise the retirement age or cut benefits that leaves him with the only solution of raising taxes. Economist and American Enterprise Institute Scholar Andrew G. Biggs points out the major problem in resotrting to raising the taxes on only those making over $250,000 (via Mankiw at link above):

There’s a big mathematical hole in Sen. Obama’s plans for Social Security. While Obama is vague about the exact tax rate he would apply to people earning over $250,000 and whether they would receive extra benefits in exchange for the new taxes, a best-case scenario is that Obama’s plan would fix around 15% of the long-term deficit, adding 3-5 years to the life of the trust fund. He’s ruled out cutting benefits or increasing the retirement age, which could otherwise fill the rest of the gap, so it’s not clear where the other 85% of the fix comes from. Sen. Obama has put himself in a bit of a box, which is perhaps the best rationale for a post-election commission — it lets both sides forget about their previous campaign promises. {Emphasis mine}

With that in mind, how is it that Senator Obama plans to fix the other 85% of the problem? Most likely he will do what every other administration has done: Kick the can down the road for someone else to deal with. However, if he is willing to get serious about fixing the looming shortfall in Social Security, the Senator has left himself with only the option of raising taxes. That means he will have to either

  1. raise taxes incredibly high on high earners providing even more of a disincentive to earn more, or
  2. raise taxes on those making less than $250,000.

Odds are that any solution would involve raising taxes on less than $250,000. Welcome to Obama’s world where every problem can be solved by taxing you more.