…If the government put the Social Security taxes "in a lockbox" that was run like a pension fund (as Australia and some other countries do), would you then view SS taxes not as taxes but as insurance premiums?...
Well, for intellectual consistency – yes.
Now let me suggest why it will never happen.
Perhaps you are following the “Catfood Commission” and other similar ideas. ...Oh Social Security is at death’s door, it is bankrupt, we’ve got to do something to save it, its a ponzi scheme .... yadda yadda yadda. What they really want is to continue the cash subsidy coming from FICA payments into the overall operating budget by either increasing premiums or lowering claims to avoid - or at least lessen - an increase in income taxes.
But let's play out the hypothetical. We put Soc Security in the Lockbox and you appoint me the first CEO. My accountant show me my Income Statement and it says I have 1 trillion in revenue (premiums paid each year) and 900 billion in expenses (claims paid). I have a 100 million Net Income - the cash overage this year.
I look at my Balance Sheet, and I have this 2.5 trillion dollars asset, United States Government bonds - oh this year it is now $2.6 trillion because of the excess cash received this year.
Now looking out in the future – I see my yearly cash excess shrinking and eventually – say 5 years out – I’m now in a negative position. Say 900 billion in revenue from premiums (FICA taxes) and 1 trillion in expenses (payments to beneficiaries). I have a 100 billion cash shortfall.
No problem. I’ll cash in 100 billion of my 2.6 trillion in bonds. No different than any of our own savings accounts right? Money saved for a rainy day.
Now looking at the actuarial tables and depending on the growth in the economy it may take me 15-20 years to eat up my 2.6 trillion dollar asset. At the end of that 15-20, the Baby Boomers have passed on and though I may have to actually borrow for a few years, soon my yearly revenue and expense comes back into balance and eventually I’m maybe in a cash surplus position again.
As the CEO, this situation doesn’t bother me a lick. Under any legal definition, I am completely solvent. Heck, I should get a bonus.
But the Politicians who are beholden to whom for campaign contributions are scared to death and trying to make you scared. This is a Gordian Knot they cannot cut.
Why? Because if you put it in a lockbox, they lose the 100 billion or so they used to subsidize the operating budget for decades, and soon – horrors – they’ll have to start actually paying back those bonds.
Income taxes will have to go up to cover the hole and since Bush I, income taxes are the 3rd rail of American politics - not soc security. |
