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  • On Social Security, Tax Hikes Are Not the Answer

    Social Security is currently unsustainable. It began running deficits in 2010 and its trust fund will be exhausted by 2036, which is when seniors will see about a 25 percent cut in benefits. This is the scenario we face if Congress and the President fail to enact meaningful entitlement reform and continue reckless fiscal policies. This course is reversible, however.

    At a recent House Budget Committee hearing on the fiscal facts concerning Medicare and Social Security, Members were divided on how to save Social Security. Despite hearing from Steve Goss, Social Security’s chief actuary, that raising taxes is not a necessity, tax hikes remained the leading option among certain lawmakers. Both parties agree that Social Security is insolvent, but they disagree on what to do about it.

    Raising taxes, however, is not an option. Amidst the greatest recession in three decades, higher payroll taxes threaten to damage the American economy. Heritage has a new plan for Social Security, as presented in Saving the American Dream. It promises to restore fiscal responsibility and protect Americans from unneeded tax hikes.

    At present, workers and their employers each pay 6.2 percent for Social Security retirement and disability benefits, adding up to a 12.4 percent payroll tax that is levied on every single worker’s income. If the government were to increase this tax to pay for Social Security’s deficits, every American worker and his boss would split an increase of at least 2.2 percent. Raising these taxes will discourage employers from hiring new workers and exacerbate unemployment.

    Tax-loving lawmakers then turn to the tax cap. Social Security taxes are currently deducted only from the first $106,800 each worker earns. But some lawmakers suggest that any money Americans don’t “need” is fair game for tax hikes. President Obama most recently revealed this philosophy, fundamentally at odds with America’s job creators, during a press conference on the debt limit. Similarly, certain members at the recent House Budget Committee hearing suggested lifting the cap on the Social Security payroll tax to pay for the program’s shortfall. But taking more money out of the private economy limits entrepreneurial exercise—the true source of wealth in any free-market economy.

    The Heritage Foundation plan does not call for unnecessary tax increases. Instead, it restores Social Security to its original purpose of being a safeguard against senior poverty. The plan includes both a transition into a flat benefit for those who work more than 35 years, as well as phasing out Social Security benefits for those who have significant non-Social Security retirement income. The plan also contains incentives to encourage Americans to work beyond the age at which they would normally receive benefits. Because Americans are living longer than ever before, they are spending more years in retirement. Therefore, Saving the American Dream calls for gradually increasing the retirement age and then indexing it to life expectancy.

    Unemployment remains high, and Social Security faces serious fiscal challenges. It simply cannot afford to pay all of the future benefits it has promised. Elected leaders must realize that tax hikes are not the answer and that there are different ways to save both Social Security and the economy. Saving both requires our attention now, and as Heritage’s David John writes, “ [I]nstead of just blindly defending the current program, both Congress and the Obama Administration should propose comprehensive programs that permanently fix Social Security.”

    Posted in Economics [slideshow_deploy]

    13 Responses to On Social Security, Tax Hikes Are Not the Answer

    1. John says:

      Social security is not an entitlement, but a savings account.
      What has destroyed this program was government taking the money and implying ti would give social security an IOU for the funds. Give the money back plus the dividends bit should have and it will be solvent again.

      • and2therepublic says:

        "If the Statist were to devise a scheme whereby a grandparent would be stealing future earnings from his own grandchild, would the grandparent consent to such immoral behavior? Yet entitlement programs tend to be intergenerational swindles that threaten the well-being of future generations with massive financial obligations incurred from benefits received by today's generation. The Holy Grail of such programs is Social Security, followed closely by Medicare and Medicaid."

        Mark R. Levin – Liberty and Tyranny; A Conservative Manifesto, 2009, Simon & Shuster, NY, NY. p. 95.

        This except is the opening paragraph of the seven chapter, On the Welfare State.

    2. Russell Hamner says:

      Novus Ordo Seclorum Mene Mene Tekal: the end of the democratic socialist communist party is at hand. did you ever consider that Welfare, is giving drink to the thirsty, food to the hungry, healing the sick, care for the blind, crippled, widow and orphan as described in the holy bible as religious exercises? I recently made that challenge. Ever wonder where the constitutionalist got the idea for the separation of church and state? Imagine… Moses came down the mountain with two stone tablets, then he transcribed them onto two scrolls Leviticus for the construction of Religion and Deuteronomy for the construction of government. they are separated by Numbers where Moses is instructed to number all that were able to go to war i.e. government, and not to number the levites i.e. religion. so if the covenant of God calls for the separation of church and state, and the constitutionalist wrote the Constitution to enforce the separation of church and state, it is easy toi see that they fromed the constitution on the covenant of God. .

    3. sy62 says:

      Love the plan. As usual beautifully done. Two comments…what about adding a carrot for taxpayers that makes it impossible to resist (such as some sort of tax holiday…say no payroll taxes for a specified period of time or similar) and this…part of the problem with our system is the competition for resources between private and public. What about having the public sector battling it out amongst themselves for scare resources? What about allocating among government entities based upon a percentage or revenue received? This could have the effect of public entities battling each other for their percentage allocation of budget proceeds. This is a much better result than the public sector always battling the private sector.

    4. dave says:

      Maybe if the government stopped raiding the Social Security Trust Fund, we wouldn't be in this mess. If we added up all that was taken out of the Social Security Trust Fund over the years and then took that same amount from the Federal Employees' Retirement System and the Civil Service Retirement System, put that into the Social Security Trust Fund, then everything would be OK.

    5. K Walter says:

      And these same people are going to run our Healthcare? They can’t even balance their checkbook! The American people NEED to stand up collectively and VOTE the crooks out and install 2 term only senators that listen to us and do right by the Constution..

    6. Bobbie says:

      John is absolutely right. Any suggesting of government to higher taxes in regard to social security is because government failed to manage the funds properly. NOW forcing the elderly to SACRIFICE????!!!!!! That's not one bit FAIR!!!!! The government obligated OUR TRUST only to have the benefit corrupt as most everything under government control is!!!!!

      As far as the bible goes, feeding the hungry is one thing, teaching the hungry how to feed themselves is the intent of the bible. The bible, unlike the President, teaches personal strength not encourage, provide and accommodate human weakness.

    7. Thomas says:

      The biggest obstacle to Social Security reform is public misunderstanding of the nature and purpose of the program. Most people think it is a form of forced investment, and that they are entitled to a return on that investment. They don't realize they have no guarantee of any return on their "investment." Nor do they realize that payments are means tested.

      The purpose of the program was to prevent poverty among the elderly. It is financed by an income tax, but the tax does not impact all types or levels of income. It is primarily a tax on middle incomes.

      Some 60% of the elderly would be in no danger of destitution if they received no SS payments. Many of the elderly are relatively well off. Nevertheless, young working people, often struggling to pay their bills, are forced to pay 6.2% or even 12.4% of their income to feather the nests of well off retirees. This program in its present configuration makes no sense.

      It would make more sense to view SS as a welfare program, and to means test it so much that many of the elderly received no SS payments. Thus, SS taxes on working people could be lowered.

      • Bobbie says:

        I agree with you Thomas, after rereading. It isn't a private account it's an insurance which is only used if and when necessary. The government help themselves to abuse their power to give ss to children of deceased parents which the intent is nice but not feasible nor appropriate to the programs intent. I know personally, children who received ss after their mother passed, she was immigrant and didn't pay any taxes. The government corrupts it as if it's a private account on the government's own accord and off the backs of those that pay/paid in! Bless her heart! It wasn't her fault or her children's! It's Government corruption!

    8. and2therepublic says:

      "Social Security is going bankrupt. Medicare is going bankrupt. Medicaid is going bankrupt. These programs and others have accumulated more than $50 trillion in IOU's due and payable by subsequent generations. Educate the young people about the intergenerational trap the Statist has laid for them – which will steal their liberty, labor, opportunities, and wealth – and build a future electoral force for whom the elixir of entitlements is understood as poisonous snake oil. These programs were created in politics and will have to be addressed in politics. Only in this way can they be contained, limited, and reformed.

      Fight all efforts to nationalize the health-care system. National health care is the mother of all entitlement programs, for through it the Statist controls not only the material wealth of the individual but his physical well-being." [Repeal Obamacare! emphasis, mine.]

      Mark R. Levin – Liberty and Tyranny, A Conservative Manifesto, pp. 202 & 203.

    9. Mike, Wichita Falls says:

      I don't like the means-testing approach to SS "trust fund" solvency. Why would someone not have adequate non-SS retirement funds? Those funds would be inadequate because they "lived it up" during their working years while others sacrificed and put off luxuries such as extravagant vacations, nicer, newer cars, XBoxes for the kids, etc. They did this so that they would not be a burden on their family and society in their later years. (Some of us also have this funny feeling that the government promise might be broken.) What would many people do if means-testing were employed as a reform? They might not build up their non-SS retirement funds, or worse yet deplete them, so that they could go on extravagant vacations, have the nicer newer cars, get XBoxes for the kids, etc. Means-testing creates a moral hazard; it encourages irresponsible behavior.

    10. Swiss says:

      I like Swiss cheese

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