I wrote this to submit to my local paper (they accept 750 word Community Perspective pieces). Let me know what you think, are there glaring inaccuracies, is it a good frame?
A Tale of Two Taxes
It was the best of times for the investor class, it was the worst of times for the middle class. Not content with a war on terrorism, a war in Iraq, a war in Afghanistan, and a war on drugs, the President has opened a new front in the war between the classes. After running a campaign based on the threat of terrorism, and an obsessive avoidance of issues, George Bush now claims a mandate to privatize Social Security. In reality, this is nothing more than a stealth effort to shift the tax burden from wealth to work. (more below the fold)
To understand the push for Social Security privatization we need to understand the two main sources of income for the federal government- income tax and payroll taxes. Income taxes are progressive: the more you make the more you pay. In fact, 30% of people pay no income tax. Income taxes go into the general fund and are used to pay for everything from education to the military.
In contrast, payroll taxes are regressive, everyone pays the same percentage, about 15% of their salary. However, payroll taxes are not paid on salary income above $87,900 or investments, therefore, the rich pay very little of their income in payroll taxes. Income from payroll taxes is dedicated to paying for Social Security and Medicare. Over two-thirds of people pay more in payroll taxes than in income taxes.
Over the past 25 years, payroll taxes have been raised while income taxes have been steadily cut. In response, the Social Security system has a sizable financial surplus while the general fund is facing a $7.5 trillion dollar debt. An objective observer would deduce that income taxes should be raised and general fund spending should be cut. Unfortunately, this reality-based observer would not be welcome in the Bush White House. The Bush Administration claims that because the general fund, supported by income taxes, is facing a deficit, Social Security benefits, supported by payroll taxes, need to be cut.
The Social Security system was established to ensure that retirees and the disabled could live in dignity and has been very successful. Unlike other retirement plans, current workers pay for current retirees. This works well as long as the number of retirees is not too large. In 1983, when it became clear that the baby boomers would overload the system, payroll taxes were raised in order to create a large surplus that could be used to fund the baby boomers retirement. This represented a large financial hardship for many people over the last 21 years, but we had the knowledge that we were ensuring that we would get benefits when we retired. This worked well, the Social Security system will continue to take in a surplus until 2018 and will be able to pay all benefits until at least 2042. Even with pessimistic budget forecasts, the Social Security deficit over the next century is smaller as a percent of GDP than we are now paying for the invasion of Iraq.
In contrast to the fiscal discipline enacted with payroll taxes, income, dividend, and estate taxes have been cut irresponsibly. The massive Bush tax cuts went overwhelmingly to the wealthy, and according to the Congressional Budget Office shifted more of the tax burden onto the middle class. This has created a fiscal disaster. We have a $7.5 trillion dollar debt, a $422 billion dollar annual deficit, and there is no end in sight. We now rely on foreign countries, notably China and Japan, to finance our debt.
Privatization of Social Security will not solve the budget crisis in the general fund. It will cost $2 trillion to privatize Social Security, the Bush Administration has proposed adding this to the National Debt. In addition, administrative costs will likely increase 20-fold in a privatized system. This creates an almost $1 trillion dollar windfall for Wall Street. In response, Wall street is now spending $15 million on a stealth campaign for privatization. And, because we don't like to see the elderly begging on the street, we will have to institute a minimum payment to workers who lose their retirement in the Enron's of the future. After all these factors are considered, the only way privatization advocates can credibly claim to save money is to reduce benefits or raise the retirement age.
In the final analysis, this is all just an elaborate shell game to phase out a popular government program. Any cuts in benefits will represent a massive transfer of wealth from workers to the very rich, and a betrayal of the contract agreed to when payroll taxes were increased in 1983.