The Democrats have responded to Bush’s Social Security plans in the way that Democrats always do – by demanding higher taxes. Given that higher taxes are the Democrats’ preferred cure for everything from hangnails to terrorism, it’s not surprising that they went this route.
However, when the Investor’s Business Daily crunched the numbers, they found that the Democrats’ tax hike wouldn’t solve Social Security’s problems:
The Democratic plan — more like talking points — would let one-third of the Bush tax cuts expire and devote those funds to Social Security. But the program would still turn cash-flow negative in 2023, an Investor’s Business Daily analysis found. That’s just six years after Social Security’s annual benefits are now expected to eclipse its tax revenue.
At that point, general taxpayer revenue would be needed to redeem trillions worth of trust fund bonds.
Massachusetts Institute of Technology Professor Peter Diamond, co-author of the most prominent liberal solvency plan, isn’t against using estate tax revenues for Social Security. But his preferred fix wouldn’t rely on scaling back any Bush tax cuts.
A plan that did so would make Social Security dependent on general tax revenue, Diamond says. That would be “such a break from tradition that it didn’t seem suitable for a compromise,” he said.
Not only would the Democrats’ plan not work, but it ignores the macroeconomic consequences of raising taxes, which would create less incentives for investment and harm the economy. Thanks to the Bush tax cuts, tax revenues were larger than expected this quarter, especially taxes derived from capital gains — all things that were cut under the Bush tax cuts. Cutting capital gains and dividend taxes encouraged more workers to invest, they earned more money on their investments and the aggregate effect was to raise revenues. It’s exactly the sort of thing that supply-side economists like Arther Laffer or Milton Friedman would have predicted. Raising taxes might increase revenue in the short term, but over the long term tax revenues would be depressed.
The Democrats never outgrew their tax-and-spend past, and the Democrat’s laughable Social Security plan only demonstrates how profoundly unserious they are about fixing the nation’s problems. Given that the Democrats have offered petulance rather than policy for years now, it’s no wonder that the GOP is the majority party in this country.
Not that I know a great deal about politics or economics, but wouldn’t it help if they took the income cap off it? This would only raise taxes for people making over $100,000 a year or so, I believe. It probably wouldn’t even affect that many people.
Without going into too much detail, that plan would actually hurt more than help. First, it would only delay the insolvency problem by six to seven years at most. Secondly, it would disproportionately hurt small businesses who don’t have a large employer to cover additional costs. They’d have to start shielding income to avoid taxation, which shrinks the tax base. The end result is a loss of 1 million jobs, and 0.3% more unemployment.
It seems like a good idea on the surface, but when you run the numbers, it turns out to be a very bad idea. Plus, it’s unnecessary. A plan like Sen. Hagel’s Social Security plan would preserve benefits, make the system solvent, and give workers the choice in invest some of their retirement funds.
I don’t really like the choice aspect. There are lots of people out there who can’t even read, so how can we expect them to invest their money wisely? And do they have to invest? Because there many people don’t make enough to cover the cost of basic necessities, so given the choice they won’t invest.
Which is why the investment option is, well, an option. Not everyone will want to take the risk of putting their money in the market, even when that risk is exceptionally small. Most people would be wise to make that choice, and any of the funds in the Hagel plan would have a potential performance well beyond thge