Monday, January 03, 2005

Social Security

Matt Yglesias has a post, one of many recently, on Social Security. He is making the case that there is no crisis. I have a serious problem with this. Yglesias is one of my favorite bloggers and is on my must-read list every day. He's a serious liberal thinker who seriously evaluates policy without the hackery we see so much of these days. Although he opposes Bush, if Bush comes up with a good policy, Matt will honestly evaluate it as such.

But on Social Security Matt seems to be letting his more base instincts take over. In previous posts, he simply said that there was no crisis, Social Security is just peachy until 2041. Finally, he addresses the fact that after 2018, Social Security is expected to pay out more than it takes in. How is that shortfall to be made up? By cashing in treasury bonds. And how would treasury bonds be cashed? By the general fund, which funds everything besides Social Security and Medicare. So one of two things happens. Either a) other government programs have to be sharply cut, or b) taxes have to be raised. Now I guess it's not a crisis in that Social Security isn't going to disappear into a black hole. But it is a crisis in the sense that Americans will have to make extremely painful choices between popular government programs, or the middle class is going to get severely burdened with high taxes.

Matt blithely says this:

Today, the agents of America's rich in the Republican Party are proposing that the wealthy default on their debt to the middle class. That this proposal exists is the only thing that Social Security must "reckon" with for the next several decades.

The people facing the day of reckoning are the high-income folks who will soon need to start paying their bills. Rather than pony up the cash, they prefer to default. The voters -- and the congress -- shouldn't let them.

I wasn't aware that the rich were obligated to pay. What statute says this? Okay, seroiusly, I know there is none and so does Matt. Matt just believes that the wealthy should make up the gap between outlays and revenues that currently exists. And this is where I strongly disagree with liberals. Why is the solution to a struggling government program always to tax the rich? And who is rich? Revoking the Bush tax cuts on just those making more than $200,000/year, as Kerry wanted, won't help all that much, especially in light of other proposals he had and liberals like Yglesias still have on their wish list.

No, as with all large scale programs, you simply cannot fund them without tapping the largest revenue base: the middle class. To suggest an increase in the middle class tax burden beyond where it's at now is simply a non-starter in my opinion, and I think most people from the center to the right agree. The middle class is already overtaxed.

How about the rich? Are they undertaxed? Possibly, you could make that case if you compare all taxes at every level, as all but income taxes are regressive. But if so, they are undertaxed in relative terms, not in absolute terms. In my opinion, and this is also supported by most opinion polls, no one should pay more than 20% of their income in taxes at all levels. Scroll down about halfway, and you'll see a poll here that shows that 90% of Americans agree that 30% is the upper limit. 60-65% agree that 20% should be the maximum tax rate. I don't see the solution to tax fairness as increasing the burden on the rich. If I'm being treated unfairly I don't respond by demanding that someone else be treated unfairly as well. I demand fairness for all of us. The solution to tax unfairness is not to raise taxes on the wealthy, but to reduce them for the middle class. Let the wealthy pay 20%, the middle class around 10%, and the poor nothing. That's tax fairness.

Back to Social Security, I fully support private accounts. The only way to make the system sustainable is to take it from pay as you go, to a system where each worker funds their own retirement. The pay as you go system is based on an untenable assumption: that there will be enough workers to support the retirees. But if you have a system of private accounts, it doesn't matter.

I'll debunk the main objections in later posts. I have yet to hear any legitimate arguments against private accounts as a concept. The only objections I've heard that have any merit are who is handling it: George Bush. He also wants to borrow the money to pay for transition costs, which is also a very bad idea. We can certainly all argue about the merits of Bush's plan once it's proposed, but for now let's concentrate on the concept of private accounts in general. I see no legitimate argument against them.