Wednesday, March 16, 2005

Get Ready for Higher Social Security Taxes and Slower Economic Growth

From "Beltway Buzz" at National Review Online:
Senate Splits On Early Social Security Vote

The Senate voted 50-50 yesterday on a nonbinding measure declaring Congress should reject a Social Security reform plan that requires “deep benefit cuts or a massive increase in debt.”

Five Republicans voted with all 44 Democrats and one independent.

The Senate also voted 100-0 to declare strengthening Social Security is a “national priority.”
There's a lot of political posturing in those votes, of course, but they point to this outcome: Congress will not go along with any sort of privatization scheme. Congress will instead vote to raise Social Security taxes so that it can avoid "deep benefit cuts or a massive increase in debt."

Precisely how will Congress raise Social Security taxes? Most likely it will raise the salary cap, in order to collect more taxes from the "rich" who make more than $90,000 a year. The predictable result: Money will be diverted from private purchases of stocks and bonds, which finance growth-producing capital investments, and directed to the elderly, who will apply it toward the consumption of non-producing goods and services.* That will impede economic growth and make it even harder to fund "promised" Social Security benefits, which will trigger further increases in Social Security taxes, etc., etc., etc.

I weep.

UPDATE: But perhaps I should dry my tears of rage and frustration:
Numbers You Don't See Everyday

Rasmussen Reports, who were very accurate in their 2004 presidential election prediction, have some contrarian numbers on Social Security.

In their poll of 2,000 adults, Rasmussen finds that only 28 percent prefer doing nothing about Social Security, while 60 percent favor change.

38 percent favor personal retirement accounts, while 46 percent are opposed. A percentage large enough to lift either side above 50 percent remains undecided.

When asked if they prefer personal accounts or “no change”, 45 to 37 percent favor personal accounts.

Finally, 51 to 27 percent favor personal accounts with no benefit changes to those over 55.

Thanks, again, to "Beltway Buzz."
* Alex Tabarrok of Marginal Revolution, writes about Public Finance and Public Policy, a new textbook by Jonathan Gruber. According to Tabarrok, one of Gruber's findings is that "Social security crowds out about 35 cents of private savings for every social security dollar."