It is a truth universally acknowledged that Americans are
underprepared for retirement. And given this sad fact, there's a growing
movement on the left saying we need a government solution, stat:
specifically, an expansion of Social Security benefits. Perhaps you are
confused. Weren't we just talking about entitlement reform so that we could
spend less on the program? Why, yes, we were. But since no one, left or right,
really wants to take on our vast army of retirees, that chatter has died down.
Now that it has, progressives who are ideologically opposed to shrinking
the welfare state and are, of course, worried about retirees have decided that
the best defense is a good offense, as Jamelle Bouie chronicles in Slate.
Instead of reluctantly agreeing to a compromise where Republicans let some
taxes rise and Democrats agree to entitlement cuts, they're
demanding bigger tax hikes to fund bigger entitlements.
At the core of their argument is a good point: Americans
really do need more money for retirement. Missing, however, is a
realistic discussion of where that money might come from. And it's a lot
of money. The OASI Trust Fund (the portion of Social Security that covers
old-age benefits) already pays out more in benefits than it collects in tax
income. In 2014, the Social Security Trustees expect the system to
collect$643.9 billion in payroll taxes and spend $716.4 billion on
benefits and administrative overhead. If you add in the taxes collected on
Social Security benefits, you get $671.9 billion in total tax revenue, which
leaves a $44.5 billion deficit between outflow and inflow. Under its
middle-of-the-road "intermediate" assumptions, the trustees' report
predicts that by 2023, the gap between taxes collected and benefits paid will
be almost $170 billion. The only reason that the system isn't in the red
already is the net interest the government is paying itself on the bonds in the
trust fund.
Before we start adding new benefits, we should think about
where we're going to get the money to pay the ones we still haven't funded. And
then carefully count the cost of making them more generous still. So where
is the money going to come from, for our once and future Social
Security program? The unhelpfully vague answer is generally "the
rich." Some specific numbers would be useful here, and thankfully, some
folks from the Third Way have actually provided some.
Let’s say the top income tax rate was raised a
whopping 10 points, to 49.6 percent -- a level higher than anything under
serious consideration. Tack on the “Buffett rule,” with its 30 percent minimum
tax on millionaires to squash loopholes. And let’s take a whack at wealthy
inheritances, cutting the estate tax exemption by about one-third and
setting the rate on large estates at 45 percent.
If we leave entitlements be, our annual budget deficit in
2030 would still be $1.3 trillion in today’s dollars, not much different from
the $1.6 trillion deficit we’d have if income tax rates for the wealthy were
kept the same. Sure, raising some additional taxes on the wealthy is necessary,
but it is not nearly sufficient.
Another favorite is eliminating the cap on Social Security
taxes, which is a slightly less vague way of saying "the rich". Every
time I discuss Social Security, at least one angry person will demand to know
how I can so disingenuously claim the system is in need of reform, when
"all we need to do is get rid of the cap on the payroll tax." All?
"All we need to do" implies some sort of modest, unremarkable
undertaking. In fact, as the Committee for a Responsible Federal Budget points
out, this amounts to a 12.4 percent surtax on all income above $118,500. By that point, the top marginal tax rate would
be well above 50 percent -- closer to 60 percent in high-tax blue states. That
would pretty much exhaust our fiscal capacity to tax the wealthy, meaning that
any new program that liberals want to implement, from early-childhood education
to high speed rail, will have to come paired with an announcement that
middle-class taxes will be rising significantly to pay for it.
Moreover, increasing the tax cap won't even raise enough
money to cover Social Security's costs unless we also break the link between
payments and benefits. Otherwise, we'll run a surplus for a few more years,
then pay out a lot of that surplus in the form of higher benefits. Progressives
should think long and hard about whether they want to break that link. Social
Security's great political strength is the perception that beneficiaries have earned
their benefits with previous payments. The more clearly untrue that statement
becomes, the more political risk there is to the less well-off beneficiaries.
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