Trump’s payroll tax cut, Democrats’ Social Security expansion, and have your cake and eat it too
Should social security be a social assistance program, helping the poor who cannot save for retirement on their own, or a social insurance program in which workers pay and receive benefits commensurate with their income? ? Or should it be an intentional program to redistribute income from the rich to the middle class?
Should Social Security be funded in advance, with each generation contributing to the fund and then, in retirement, spending (collectively, by cohort or individually) the funds that have been set up? Or should Social Security be a simple pay-as-you-go system, in which tax money (or borrowing, or printing money) pays benefits, as simple as that?
We once collectively had a myth (i.e. in the sense of a basic story) that social security was both pre-funded social insurance and ‘real’ social insurance (rather than social assistance / redistribution). Now we are also collectively letting go of these two elements, even by aspiration.
Yesterday, I sketched Vice-presidential candidate Kamala Harris’s plan for social security: substantial increases in benefits coupled with a phasing out of the income cap and taxation of investment income (at least for high-income workers). Biden’s own platform is less ambitious in some ways, but also less detailed – for example, it misses the 15% benefit hike included in Harris-sponsored legislation, and is more vague about additional taxes and could mean as much as the increasing tax rates for high incomes, rather than simply applying taxes to more incomes.
It is clear that this abandons the principle of social insurance according to which, on the whole, a person contributes and receives benefits from the system in gross relation to his income; instead, he calls on the rich to “pay their fair share,” with the hope that what is “right” is subsidizing the rest of us. It also recognizes the reality that our system is simply pay-as-you-go and, to the extent that an expanded social security benefit decreases workers’ retirement savings (or reduces the degree to which savings might otherwise have increased to fill the gap). gap left by the demise of traditional employer-sponsored pension plans), it increases the pay-as-you-go distribution of the pension system as a whole.
But let’s face it – you can be sure you will still hear plenty of claims that workers “earned” their benefits fairly by paying their FICA taxes.
What about Trump?
Hoo-boy, don’t get me started on Trump.
Here is the last of his press briefing yesterday:
“When we win the election – when I win the election, I will completely and totally forgive all deferred payroll taxes without harming Social Security in any way. This money will come from the General Fund. We are not going to touch social security. I said from day one that we were going to protect social security and that we were going to protect our people. . . .
“And the beauty of it is that it really gives companies an incentive, and – because it’s both a corporate cut and a – a reduction in employees. . . .
“And the payroll tax – we’ll end the payroll tax after I’m elected, hopefully. We will end the payroll tax, which will mean between $ 5,000 and even more per family, which is also great for business and great for jobs. . . .
“Q How do you finance it from the General Fund, when the General Fund has just contracted a debt of 2.8 trillion dollars?
“THE PRESIDENT: You are right, but we are going to have tremendous growth. We have tremendous growth.
Does Trump want to destroy Social Security? He may be mistaken in his belief that “tremendous growth” will mean the federal government can absorb the spending on funding Social Security benefit checks (or, let’s not forget, Medicare Part A) without taxes. FICA doesn’t come in, but basically it makes the same change that advocates of “remove the cap” are calling for: a shift from “you get what you earn” to a government benefits program. (If he realizes that’s another question.)
Additionally, here is an argument (paraphrased) presented by “Son of Spengler” (@spengjr) on Twitter: The current legal structure of the program means that social security can legally only pay benefits for money from the trust fund. When the trust fund is exhausted, benefits will be paid only to the extent that the FICA tax money that is immediately collected at that time can finance them; one way or another, if no changes are made in the meantime, administrators will have to reduce benefit expenses by 20%. But if Trump drafts legislation that says “there is no FICA tax and general revenues fill the void,” that paves the way for filling not only for the lack of an FICA tax, but also for the gap between the hypothetical no-plus -the existing FICA tax and the program costs after the trust fund is exhausted.
Far from being a fatal blow, it achieves the goals of Social Security Democrats / expansionists. As Spengler’s son writesFar from the Democrats’ false cries that Trump is’ undermining ‘the program, Trump’s precedent gives them precisely what they want – unsustainable benefits without any responsibility for finding a way to pay them. The program becomes immediately solvent, at the expense of the general fund.
And, finally, I called for a tiered retirement system, in which Social Security is replaced by a pairing of a pay-as-you-go basic income and genuine retirement savings accounts funded to provide income. greater than this amount. basic minimum. (It was, after all, the subject of my second article on this platform, in which I elaborate on this proposal.) As Democrats individually and collectively came together around an expansion of Social Security that would include a minimum 125% poverty benefit with 30 years of experience professional, I realize that in this context, it is more difficult to argue in favor of the type of reform that I envision, that is to say that they offer the same concept of “basic” services than me (the biggest difference being their work history requirement) but without making any other fundamental changes to the system – hence “have your cake and eat it too”.
But he Is matter. Middle class Americans should not depend on the government to provide their retirement income “at the replacement rate”, and all the more should not believe that this can happen through the rich “paying their fair share”. The government has an important role to play in providing a legal structure for saving and converting assets into retirement income, and most likely, even very likely making savings mandatory, but it is basically a totally role. different than just cutting checks.
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