This Week in Policy and Politics

Kerry on Social Security

CSE Members know that Social Security is going deep into the red in just fifteen years. It’s a positive sign, then, that Social Security reform is becoming part of the 2004 Presidential election debate.

Today’s Boston Globe is reporting that Democrat Presidential candidate Senator John Kerry (D-MA) told a group of Massachusetts political activists that if he were elected president, he would look at means-testing for rich Americans as part of a broader Social Security reform effort.

Kerry’s ideas include increasing Social Security taxes on upper income Americans, and also capping their benefits. The Globe reports Kerry said, “Rich people are getting checks from poor people, well beyond what they put into the system,” and Kerry would consider limiting their benefits to the amount they paid into the program. Kerry also wants to increase the amount of income subject to the payroll tax from $86,000, saying “Maybe people ought to pay [at income levels] up to $100,000 or $120,000.” Of course, that’s going to be a big tax increase.

It’s great that Senator Kerry is talking in such detail about the looming Social Security crisis, but some of his solutions are flawed. The real answer to the Social Security crisis isn’t more pain, but to create Personal Retirement Accounts (PRAs) that let every worker invest into a personal account that they own, control, manage. That’s the only way to stop the games in Washington and to make sure that Social Security is there for all of today’s workers.

Another Tax Cut?

After meeting with his economic team on Wednesday, President Bush had an interesting exchange with reporters at a press conference at his Crawford, Texas ranch:

Q Are you going to go for a new round of tax cuts this fall?

THE PRESIDENT: Elizabeth, we are discussing a lot of things. And we believe that the tax relief plan we have in place is robust enough to encourage job growth.

Q Is that a “no”?

THE PRESIDENT: Well, as of this moment — see, things change in the economy, as you know, but as of this moment, we feel like the plans we have in place are robust enough to create jobs.

Q Is there any discussion —

THE PRESIDENT: Please. The other thing that’s necessary is to make sure we’ve got spending discipline in Washington, to make sure that Congress doesn’t overspend. And that will — because that will affect the psychology of those who are — risk capital in order to create the job base.

You had a follow-up, I take it.

Q Yes, I was just going to ask you, the discussions in the administration — maybe not at the White House level — about a, perhaps a business tax credit, that you would get a tax credit if you hired somebody to sort of —

THE PRESIDENT: Well, thus far we — in the discussions today, we feel like the tax relief plans that we have passed will be robust enough to create the conditions necessary for economic growth, and therefore people will find a job. If we change our opinion, we will let you know. You may not be the first to know, but you’ll be one of the first to know.

Of course, the next big tax cut is schedule for next year, not this fall. Also, the business employment credit is a terrible concept, so it’s good that the President was completely dismissive of the idea. The last thing we need is to involve the IRS and the tax code in business hiring decisions. It’s also not clear whether the President’s comments apply to Congressional plans to fix some of the problems with U.S. taxation of multi-national corporations. In late July, House Ways and Means Chairman Bill Thomas (R-CA) unveiled a plan to eliminate some of those distorting elements of the code.

Most importantly, President Bush’s comments did not apply to making existing tax cuts permanent. That’s why CSE Members are pushing this fall to make the 2001 and 2003 income tax cuts and Death Tax repeal permanent long-term policy.

California Free Fall

Arnold’s campaign is gaining steam; it’s still unclear how much of a fiscal conservative he’ll turn out to be, but hope springs eternal. The most interesting news this week in the Oct. 7 recall race is a report from the Los Angeles Times that Arianna Huffington paid only $771 in federal income taxes over the past two years. The Times reports that she was able to use business loss deductions to offset her income from lectures and publishing. Let’s hope she advocates a similar level of taxation for all Californians.

Meanwhile, in Sacramento, Rome continues to burn. After Gray Davis signed his budget into law, Moody’s this week downgraded California’s state bond rating to near-junk status. With a tax increase off the table for the time being, the Governor simply borrowed $14 billion to keep the state running. That’s only buying time, and at a cost for future California taxpayers. The only long-term answer to California’s budget woes is to dramatically terminate wasteful spending programs.

Wisconsin Cheese: Property Tax Hikes In Place

According to the Legislative Fiscal Bureau, Democrat Gov. Jim Doyle’s new state budget will increase property taxes by estimated 7.9 percent for 2004 and 6.7 percent in 2005. Thanks Governor.