September 25, 2007
Senator Obama's Social Security Fix
We've been awfully tough on the Junior Senator from New York lately; it seems only fair to take a whack at the Junior Senator from Illinois.
Greg Mankiw points out that he has a new plan to fix Social Security:
I do not want to cut benefits or raise the retirement age. I believe there are a number of ways we can make Social Security solvent that do not involve placing these added burdens on our seniors.
But he does not consider a 46.7% marginal tax rate an added burden on the rest of us.
One possible option, for example, is to raise the cap on the amount of income subject to the Social Security tax. If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall.
Click on over to see the Harvard Prof do the math, twice.
Combine this with eliminating the Bush tax cuts, and small business owners and upper income Americans are going to be facing marginal rates well above 50%. I know that Austen Goolsbee is a whiz kid, but he has not made any progress converting Senator Obama from an average tax and spender.
Nothing new. Paul Krugman's proposed the same thing for a long time.
However, I support such a massive tax increase, in a way. Yes, I really do, for the simple reason that people aren't paying enough into Social Security for what they'll be getting out. But my support comes at a price: the ability to opt out of the system, paying nothing in exchange for no chance to receive anything later.
Then, when payroll taxes keep increasing massively, people will see just how much they have to save for themselves in order to retire for 15-20 years.
Posted by: Perry Eidelbus at September 26, 2007 11:51 AMOpt out -- sounds great! And how is the weather on Planet Perry this morning?
Posted by: jk at September 26, 2007 12:03 PMNo need for sarcasm when you misunderstand. I'm not saying it would ever happen, just that, strangely enough, it's the one reason I'd support removing the salary cap on SS taxes.
Posted by: Perry Eidelbus at September 26, 2007 1:34 PMI got you (and meant my sarcasm in the friendliest possible way).
It is very possible that a future Democrat House-Senate-Executive will remove salary caps with no other reform. That would torpedo growth.
Posted by: jk at September 26, 2007 2:15 PMThere's one other reason to support higher taxes and for this one, the greater and faster the better: It will accelerate the impending Strike of the Producers. Talk about "processing and clearing" a bubble!
Posted by: johngalt at September 26, 2007 3:14 PMAnother excellent reform: eliminate the employer contribution and shift it to the employee. Let people see how much their base wages are, how much we're putting in, and the fact that so many of us won't see a penny of the money back. The system will still go bankrupt a mere 10 (no typo) years from now.
Imagine how much less Tiger Woods will play, and how much more time he'll spend with his wife and baby, when he has to pay 12.5% of every dollar he makes. I was telling a friend the other day how Tiger Woods adds all those millions of dollars of growth to the economy, which I'll get around to someday in a blog entry.
Posted by: Perry Eidelbus at September 27, 2007 11:43 AM"The ThreeSources Millenarians" I should have some shirts printed. As a general rule, I don't subscribe to stressing systems so that we can rebuild the Earth in our likeness when it all crashes down.
I'm willing to consider it, however, on Perry's SS proposal. I think it could be made revenue and tax neutral, just add the employers' contribution to the FICA amount shown on the pay stub. Let people see what they are really paying.
Posted by: jk at September 27, 2007 1:40 PM | What do you think? [7]