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June 14, 2004

Fraud of Social Security "Reform"

Steve at the truly oddly named Deinonychus antirrhopus has a beef with my attacks on social security "reform."

He complains that in this old column I made a false statement, namely when I state:

if you take a big chunk of social security taxes and put them into private accounts, that means you have to use a chunk of income taxes or other general revenue to pay for current retirees.
How do you divert social security now paying retirement benefits to private accounts without additional tax money, according to Steve?

More federal debt.

Sure, let's stick future taxpayers with the bills for today's retirees. Talk about an irresponsible free lunch. It's hard to believe such folks want to be taken seriously.

Of course, the irony is that Steve's favorite privatization plan, by a fellow named Laurence Kotlikoff, requires hefty new taxes, namely an additionally 12% national sales tax.

You read that right. Following social security "reform", on top of federal income taxes, social security payments (now "privatized"), state sales and income taxes, and local property taxes, everyone would now be paying an additional 12% federal sales tax.

So here's how your taxes would now look if you make say $50,000 per year (in New York City where I live for fun). You'd still pay the same amount out of your salary for social security-- it would just go into a government-run "personal account". So here's your new marginal tax rates:

7.65% Medicare/Social Security ("personal accounts")
25% Federal Income Tax
~10% State and city income taxes
8.6% State & city sales tax
12% NEW federal sales tax

Grand Total: 63.25% of all income I spend would be taxed

So who wins under this system? Well, employers get to stop paying social security taxes. And since it's a national sales tax, rather than an income tax increase, those with investments don't pay any increased taxes on their income.

So this is the result of conservative social security "reform"-- really regressive tax increases.

If you want a simple revenue source to shore up social security, the simplest approach is to tax ALL wages, or, better yet, tax all income. Right now, only wages up to $87,900 are taxed for social security. If you are a CEO, therefore, you pay SS taxes on only a tiny portion of your wages, while a minimum wage worker is hit for every paycheck.

The reality is that if we popped that cap and taxes all wages and investment income as well, social security would be solvent as far as the eye could see, with no need for all these conservative games with our retirement future.

So don't believe the hype. All social security "reform" means is tax hikes for working people. Nothing more. Nothing less.

Posted by Nathan at June 14, 2004 06:40 AM