Over at National Review Online this morning, IWF’s Carrie Lukas responds to critics of her recent article on Social Security reform and explains the tax burdens associated with the current system and with reform efforts:
“Conservatives familiar with the history of the Social Security debate know that they need to look not only at the payroll-tax rate, but also at how much of income taxes is committed to the program. It’s easy to make Social Security’s numbers balance without changing payroll tax rates if you are willing to dump enough income taxes into the program. Shifting the burden to the income tax is what many liberals would love to do, since it would require ‘the rich’ to shoulder more of the burden. This was actually Vice President Al Gore?s strategy: simply inflate the value of the trust fund with enough general revenues to pay all promised benefits and the problem is solved! Conservatives know better: Taxes are taxes whether they are raised through payroll taxes, the personal income tax, or levied on corporations.
“Some Republicans have championed reform plans that include big personal accounts, but do nothing to address Social Security’s liabilities. There are merits to these plans, but we shouldn’t pretend that they don’t have real costs for taxpayers. Ignore what precisely the revenue sources are and look just at how much the program costs – that way you’ll know how much of a burden the system will place on taxpayers. (For example, Peter Ferrara’s proposal explicitly depends on an additional $7.9 trillion in corporate income taxes over the next 75 years. Taxpayers should be as concerned about that tax increase as they are about any other.)”
Carrie continues,
“big personal retirement accounts cannot be the only measure of a plan’s ‘conservatism.’ One of the most bizarre aspects of the debate about conservative Social Security reform is that some conservatives ignore the importance of controlling the growing burden of Social Security as we transition to a personal account system. Indeed, many of the most tax-heavy proposals have been offered by conservatives who have refused to discuss any reduction of the benefits promised (but unpayable) under current law.
“For example, they recoiled from the president’s sensible plan to slow the growth of future benefits for those in the upper- and middle-income brackets. The president didn’t propose changing the benefits of those already receiving Social Security or those with low incomes who will depend on Social Security at retirement (in fact, the president?s plan would have increased benefits for lower-income retirees relative to the benefits the current system can afford to pay). The president’s plan simply would have made Social Security benefits stay the same in real terms for the top 0.5 percent of earners, instead of growing in excess of inflation, and would have allowed benefits to grow faster than inflation for everyone else. That alone would have done a lot to reduce the government’s – and that means the taxpayers – liabilities.”
Read her whole article here.