The Same Story
This landed on Winds of Change. Maybe it's a bit clearer than the ones I've written before on the same topic.
Supply/demand charts don't mean a thing to people who don't have jobs. We're not particularly close to one of the historical lows for employment at the moment. Employment to population _is_ worrying low at the moment, and it seems to keep dropping.
Let's be clear on what's happened since trickle-down economics became popular. You can easily look up the studies for yourself on income and employment (Saenz and Piketty, IRS site, CBO site), but the gist of it is this: Since the late 70's, capital gains taxes have been cut in half, as have income taxes on the wealthiest 2% or so of the population. The line being force-fed to the public was that this would "stimulate" the economy and raise all boats with the tide. What has in fact happened?
Constant dollar income from 1972 to 2000 rose by 4%, if you are in the _bottom_ 99% of income earners. If you're in the top 1%, constant dollar income increased by over 500% (Saenz, Piketty). Furthermore, if you were in the 99% to 99.5% bracket, your income increased by about 40% (which weights the upper bracket even further).
Meanwhile, as we were dramatically cutting taxes on the wealthiest political donors, we _increased_ social security taxes, circa 1983. Why did we do this? To "save" the system, so it would have enough money to pay for baby boomer retirements, amongst other things. Note that because social security taxes cut off at 87k (today, somewhat less earlier), social security taxes fall disproportionately on the poor and middle class. Three quarters of Americans pay MORE in social security taxes than they do in income taxes.
Instead of setting aside the money, the geniuses in BOTH parties simply added it to the general fund and spent it, leaving a shiny IOU in place of the cash.
So poor and middle class people have been _overpaying_ into the social security fund. Where is the extra money going? Why, it was given to the highest income earners in the form of a tax cut! So we cut taxes on the wealthiest because there is a "surplus", and we pay for it by transferring money out of the social security silo, to balance the general fund's budget.
There is only ONE fair solution...if too much money is in the social security fund (and over the past 20 years there has been), GIVE IT BACK TO THE PEOPLE WHO PUT IT THERE. We call them the poor and middle class, in this country. Why on earth would we give THEIR RETIREMENT MONEY (and YOURS) to the highest income individuals?
Our "conservative" friends tell us that by letting top income earners avoid taxes, we somehow stimulate the economy. Exactly how much "stimulation" does the economy need to undergo to make up for the MASSIVE THEFT of retirement savings from the poor and middle class.
Go figure out for yourself...the general fund has borrowed over $1.8 trillion from social security. What part of that did YOU contribute? Would you be better off with that in your retirement account, or are you better off with trickle-down BS and tax avoidance schemes for the wealthy?
I think the election is all about the economy, and all about ethical fiscal management of public resources. There are a lot of folks who orbit this blog who'd want to say it's about security. I agree, but security has both a long term and a short term. Short term is military, and is not really all that much of an issue. The course has been set, and a President of either party isn't going to vary too much. Longer term we need a solid economy to _sustain_ that security. Taxes as a percentage of GDP are at their lowest levels (around 15%, down from 19.5% recently) since the 1950s. What, YOUR taxes are way higher than that? You're right. They are; you pay way too much in tax, between federal income, social security, and medicare. The reason you pay way too much is that there are others who don't pay their share.
Guess it's not hard to figure out which side of this I'm on. But here's the thing: Exactly what does Kerry have to say about this situation? So far...nothing substantive. Hopefully it'll come. Bush's policies have clearly favored the same failed trickle-down policies we've been suffering under for the past twenty years.
We have two decades that shows us that the effect of cutting taxes on the the wealthiest of Americans has the effect of...reducing how much tax they pay.
This essential flaw has been masked by steadily increasing and incomprehensible public debts. Out of sight, out of mind...
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§ 4 Comments
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Ross:
Ross:
Good points, but there's a point missing there, I think. I'll agree, as any rational person must, that the reduction in taxes has had the effect of reducing taxes paid. To equate that to the redistribution of the social security taxes paid from the poor to the wealthy is a bit inflammatory.
The wealthy don't need Social Security, so means-testing would blow a hole in your position. The heart of the problem is that Social Security, as currently constituted, is a Ponzi scheme of the first order, and always has been doomed to failure.
Such a failure, in fact, that even your proposed solution, taxing the wealthy even more, won't solve it. Purely redistributive taxation of the most aggressive sort is hard to argue - at what point on the income scale would you propose taxing 100% of marginal income?
If the issue is that you think taxation's too low on the tiny subset of the populace that makes up more than half of all tax receipts, feel free to make that argument, but tying it to Social Security dilutes your point.
As is typical for me (and not
As is typical for me (and not that you asked further detail) I ran across an interesting clarification of this matter, AFTER my original comment, from [url=http://www.townhall.com/columnists/alanreynolds/ar20040304.shtml]http:/…]
The man's got a point - the two issues (income tax and Social Security) are really quite separate, and should remain so.
I can't agree with you,
I can't agree with you, Patton. For the past twenty years social security has run at a significant surplus. This surplus was created by excess taxation on the poor and middle class, above and beyond the monies necessary to "pay as you go" with the current program.
This surplus was diverted in the government's general fund. As such, we need to consider the manner in which this revenue was generated. SS is generated by a tax on the poor and middle class.
Social security benefits will be lower in the future because that's the way the math works. Something has to give; we either need higher taxes or lower benefits.
The IMPACT of lowering income taxes on social security is huge. Why? Because the tax cut should have gone back to the people who created the surplus in social security; the poor and middle class. They have now been denied the opportunity to save this money for their own retirement, in their own way. So the overall impact is, in my opinion very severe, as future retirees will be more dependent on social security.
Does that clear up my thinking?
As far as a "debilitating" tax increase goes, 5% ain't bad, historically. Under Clinton tax as a percentage of GDP was around 19.8%; under Bush that's dropped to around 15%, a decline of nearly 5%. So there's your 5% right there...things ran fine in the economy when we were at that 20% taxation level. The deficit right now is running around 6% of GDP, which is huge...
Ross:
Ross:
Your thinking wasn't unclear; it never seems to be, I just think it's incorrect on this issue.
Lowering taxes on social security would have the beneficial impact you suggest, but would do nothing but exacerbate the ultimate problem - Social Security is a Ponzi scheme, and not economically sustainable.
Making it even more so, and then making the general income tax receipts responsible for covering this economically unsustainable entitlement would be no solution to the ultimate problem.
Which taxes are you speaking of in the 20% and 15% numbers above, if I may ask? And how is a 5% swing "not bad" yet a 6% swing (negative) is "huge"? Note: 6% IS huge. I'm appalled by the spending tendencies of this administration, and couldn't care less that Congress goes along - Bush hasn't vetoed a single thing, budget or otherwise, and is spending absurdly on several absurd things. Cutting taxes during a time of war also strikes me as ill-advised and unprecedented. But the larger issue, at what point in time we just confiscate all marginal income, is the one that worries me.
The root of the problem is that due to demographics, we have a public retirement system that is utterly unsustainable. By the time I retire, I'll not be expecting SS to cushion me. And remember - we're still on the point of the return curve where present day SS recipients receive back far, far more than they put in, so the fact that only wage earners contribute isn't nearly the injustice you describe.
That won't always be so, of course, and there are several rational solutions. First, means testing. Second, more means testing. Rich people (at some level or definition) should not be invited to participate in what amounts, in present day implementation, to nothing more than welfare, due to its outsized return for cash "invested". This would be part of the price they paid for having so much of their income exempted from payroll taxes. And it's a small price anyway.
Thirdly, a fully funded, possibly defined contribution, plan needs to be transitioned to - this could take decades, if not a century, but waiting to do it is only viable if we expect Armageddon sometime sooner.
Fourth and finally, taxation and pensions need to be separated in idea and in fact - their notional combination in the present structure makes it possible, nay, invites, incorrect assessment of what's right and what's wrong with each.