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Blog

    Tax Increases Should be Off the Table for Social Security Reform

    02/08/2007

    In the spirit of debate, a quick response to IWF’s Carrie Lukas, who arguing on their blog today that tax increases should be on the table as part of Social Security reform.

    “The status quo is an enormous loss for those who believe in limited government and free markets, and a big victory for those who want government to expand."

    A new payroll tax increase as part of a Social Security deal would be an enormous loss for limited government, as it would send even more money and power to Washington, D.C. How is a tax increase better than the status quo? Today, workers can save or spend those extra dollars (it is, after all, their money).

    Look, Congress can’t even protect the current Social Security surplus— I think we agree they are spending all of those dollars on other programs. A tax increase should be off the table—Congress needs to take an initial good-faith step by immediately stopping the raid on the Social Security Trust Fund and stop spending the existing payroll tax surplus. If Congress can’t even be a responsible steward of the current Social Security surplus, why should we trust it with even more of our tax dollars?

    “We should be just as concerned about how much Social Security is going to draw from general revenues as we are about the money subject to payroll taxes.”

    Raising taxes without stopping the raid will do nothing to address the program's unfunded liability, and would reduce investment and economic growth so that things are even more difficult for American budgets in ten years. Again, the first step towards fixing the program is to stop the raid on the current surplus and to direct those funds to personal accounts, protected from the appetites of Congressional appropriators.

    “Some Republicans have championed plans that include very big accounts, don’t do anything to reduce benefits promised under current law, and pretend that there are no costs associated with paying those benefits."

    In terms of program economics, large personal accounts do reduce promised benefits because those workers are opting out of the traditional system. Indeed, large personal accounts are the only path to sustainable solvency because each worker is (eventually) saving for their own retirement. Personal accounts would finally end the Ponzi, pay-as-you-go design of the current system.

    “Clearly it would be easier to transition to a system based on personal investment if we didn’t have the liabilities of the current system hanging over us, so why aren’t conservatives willing to talk about ways to reduce the burden of the old system?”

    Raising taxes does not reduce this burden because, unless all of the money is put into personal accounts that individuals own and control, Congress will simply spend those new dollars on other programs.

    “But at least I guess, the amount of income subject to the payroll tax will only go up another $3,000 next year, and that’s supposed to be some kind of victory for the low-tax movement. “

    Yes, the existing annual increase is a heck of a lot better than a massive new payroll rate increase or blowing up the cap.

    The bigger point is that American workers are already paying more payroll taxes than Social Security needs in order to pay current benefits, but instead of saving the surplus Congress is spending it. It’s hard to see how plowing more money into a broken system managed irresponsible lawmakers will make Social Security a better deal for today’s workers.