Tuesday, February 01, 2005

Social Security 

Ok, an actual post on politics and policy, if you can believe it. This is actually a slightly reworked version of an email I sent today, so it may not be the clearest thing I've ever written. But, here goes. Now, Bush, after saying he wouldn't cut benefits, now says he will, but they'll be more than made up for by the magic of your personal/private/individual/insert-good-polling-word-of-day-here accounts.

Now, this clearly is untrue. See Paul Krugman or Kevin Drum But this post isn't about that, it's about the sort of Grand Bargain we've been toiling under since 1983 or so. What happened then is that Greenspan headed a commission to deal with, get this, the looming fiscal crisis in SS--and back then there really was a crisis. His solution, which wasn't a bad one, was to increase payroll taxes and apply them to the first $80-some-thousand of income (I think it's $87,000 now). Obviously, this is a regressive tax. The idea was that this would build up a surplus in payroll taxes. That is, we'd collect more in payroll taxes then we'd have to pay out in SS benefits. Indeed, this was and still is the case. The idea was that this surplus would be invested in goverment bonds, and when the surplus ran out, it would cash in these bonds and therefore we'd still be able to pay full SS benefits.

Now, at some point in the future the gov't will have to start buying back these bonds, if we keep the current system. How does it do this? It uses money from the General Fund. Where does this money come from? The vast majority from income taxes. So, Greenspan's Grand Bargain, such as it was, was to increase a regressive tax (the payroll) for a while, and then, when there was no longer this surplus, have the progressive income tax make up the shortfall through the buying back of gov't bonds.

And, of course, the income tax falls mostly on the rich--I'm talking federal revenue, not tax rates, by the way. Point being, the Bush phase-out plan will have this nice added benefit--middle and working-class Americans uphold their end of the bargain from 1983 until whenever Bush implements his plan, but the rich don't hold up their end, because they never buy back the surplus.

Now, which party is the party of class warfare again?
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