Social Security crisis? Not if wealthy pay their way
http://www.csmonitor.com/2005/0127/p09s01-coop.htmlIs Social Security headed for a crisis sooner than
thought? Although President Bush says so, not everyone agrees.
The system's trustees estimate the Social Security trust fund is in
good shape for another four decades. The nonpartisan Congressional
Budget Office figures five decades. Many independent economists
think Social Security is healthy for more like six or seven decades.
But there's a vocal contingent that thinks Social Security has much
more urgent problems. For years, Social Security has been
amassing surpluses that the system's trustees use to accumulate
Treasury bonds in its trust fund.
<snip>
In 1983, at a time when Social Security was genuinely
facing a crisis - it was mere months away
from failing at the time - a commission
appointed by President Reagan and
headed by Alan Greenspan proposed a
series of fixes. Among other things, the
Greenspan commission recommended
increasing payroll taxes.
But there was a twist: Knowing that the
baby boomers would begin retiring around
2010, Mr. Greenspan recommended
raising payroll taxes by much more than
was needed to pay benefits at the time.
The surplus would be used to buy
Treasury bonds, which could be
redeemed when the boomers retired and
payroll taxes were no longer sufficient to
fully fund retirement benefits.
This is where the second twist comes in.
Because the surplus payroll taxes were
handed over to the federal government (in
return for Treasury bonds), this meant
ordinary income taxes could be kept low.
After all, the federal government has a
fixed need for money, and if it gets
excess money from payroll taxes it can afford to keep income taxes
lower than they'd otherwise be.
But the payroll tax is a flat tax, paid disproportionately by low and
middle income workers. The income tax is a progressive tax and is
paid disproportionately by high earners.
So this was the implicit bargain in the reforms recommended by
Greenspan and signed into law by Reagan: From 1983 to 2018, low-
and middle-income earners would pay excess payroll taxes. This
allowed income taxes to be kept low, and primarily benefited high
earners.
Then, beginning in 2018, instead of raising payroll taxes to pay for
baby-boomer retirement benefits, Social Security would begin selling
its bonds back to the government.
To pay for those bonds, income taxes would be raised - high earners
would begin paying higher income taxes. In other words, the fact that income taxes will eventually need to be
increased in order to cover Social Security benefits was part of the
Greenspan/Reagan plan from the start.
That's the real meaning of the trust fund: It's an implicit promise that
high earners will keep their part of the bargain and begin paying their
share of Social Security's costs when the baby boomers retire.
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and the reason *moron claims 2018 is doomsday date for SocSec.
dp