Thursday, February 17, 2005

Tax hikes no fix for Social Security

News that raising the ceiling on Social Security taxes over $90,000 is one of the steps being considered for the proposed "fix" should surprise no one. Of course the way it is portrayed in headlines suggests it's a done deal and that Dubya is 100 percent behind it. The fine print says something else.

White House spokesman Trent Duffy said raising the cap on Social Security taxes is just one option among many being advocated.

"Just because he said it was an option doesn't mean he embraced it," Duffy added.


Of course raising the ceiling is wildly popular with Democrats and therein lies the danger: Bush might offer the ceiling hike as a bone to gain Dem support of his plan for independent personal savings accounts. He should resist the impulse to compromise.

Democrats were eager to help President Ronald Reagan "fix" Social Security back in the 80s, and that resulted in higher payroll withholding taxes for most wage-earning Americans. It wasn't a fix but a postponement, and in the meantime American workers gave more of their hard-earned pay to the government. In its gratitude, the government has spent every penny.

For those naive enough to believe that there actually exists a Social Security trust fund, a place where monies, securities, or precious metals are kept against the day they will be needed to pay for your retirement needs, please remove yourself to a place where there are no sharp objects. All Social Security monies are spent shortly after they arrive in Washington. Those that are not used to fund Social Security check are used in the general treasury, and a record of the IOU is made instead. The government has billions of dollars of IOUs where the mythical truth fund is supposed to be. The actual money you sent in has gone in part to subsidize the Grammy Foundation, the National Endowment for the Arts, pothole repair in Fairbanks, AK, etc.

What will happen in a few years? Since the Baby Boomers are numerous and are, by virtue of our science, guaranteed to live longer than any previous generation, there will not be enough salaried workers to sustain a positive cash flow within just a few years. This leads to two inter-related problems:

A) The Social Security Administration will need to cash in more and more of the old IOUs with the U.S. Treasury. The Treasury will have to come up with the money somewhere, either taking it from the general fund or by borrowing money from the private sector (American or worldwide). As the dollar loses influence and value overseas, this may get very hard to do.

B) The billions of dollars each year that Congress has grown accustom to spending (we'd say "in the style of a drunken sailor" but that is mean-spirited and unfair to the drunken sailors) are going to shrink and disappear, starting in about 2010, just five short years away. Congress then must decide to 1) borrow money to keep existing programs funded, competing against the needs of Social Security in the world-wide credit market, or 2) cut programs big time, or 3) raise taxes on all Americans substantially.

All this will happen with or without Social Security reform and private investment accounts. But private accounts will cushion the blow for younger workers and perhaps stimulate enough economic growth through investment in American enterprise to generate more revenues for the government, thus ameliorating the need for big tax hikes or big program cuts.

Will it work? No one knows for sure. What is for sure is that if we do nothing we are going to be in one hell of a mess within a very few years, a lot quicker than the head-in-the-sand liberals of either party would have you believe.

In the meantime, the idea to collect Social Security's 12.4 percent tax on incomes over $90,000 is a bad idea for many reasons. It would be a tremendous disincentive to the upper middle class who invest, fund and initiate much of the small business growth in this country, and domestic small business is the backbone of the American economy, the only real patriotic companies still in business, we're afraid. Raise the tax and see the Golden Goose, already quite ill, go into a coughing fit, vomit and die.

Another reason it is such a bad idea is that those earning over $90,000 in wage-earning jobs will derive no additional Social Security benefit for their sacrifice. People will figure this out and they will find ways to legally avoid the tax or hide their incomes. Altruism only cuts so far.

Remember, liberals never saw a tax that they didn't like, usually so well that they'll increase it later. True Social Security reform means thinking outside the old liberal box -- it's the only chance we have of climbing out of the hole we've dug.

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