More for the rich
By David Cay Johnston
The views expressed are his own.
President Barack Obama this week started pitching his plan to cut U. S. taxes for everyone in 2012 and then in 2013 raise income tax rates for high earners, primarily those making more than $1 million, many of whom bear a lighter burden than a cop married to a nurse.
Two responses are certain.
There will be claims that economic ruin will follow once taxes go up. Never mind the proposed 2012 tax cuts are for virtually everyone. Never mind that the modest rate hikes would apply only to those who make more than 97 percent of their fellow Americans with most of the burden on those making more than $1 million. Never mind IRS data showing that tens of thousands of those whose increased taxes would increase their income tax rate by just 1.2 percentage points make more in a year than the median family earns in a lifetime.
Obama has also set a clever trap for anti-tax Republicans. Obama’s American Jobs Act would lower Social Security taxes for all workers and for all businesses in 2012. Republicans who vote against the bill would be voting against a tax cut. They would also be voting against a huge business tax break, letting business immediately write off all capital investments made in 2012.
The other, more pernicious attack will be on the best funded, most effective and most efficient government program around: Social Security.
The latest assault on Social Security comes from Governor Rick Perry of Texas, a Republican presidential hopeful who insists that social insurance for widows, orphans, the disabled and the old is a Ponzi scheme.
If Social Security is a Ponzi scheme then so are public education, businesses and the state government that has for decades employed Rick Perry.
ACCOLADE OR EPITHET
The education of the children born to today’s kindergarten students must come from future tax revenues. The profits Wal-Mart makes in 2091 depend on people not yet born making purchases. And if Perry is elected president, his salary and presidential pension will depend on new money coming in.
Every enterprise depends on future income, which is where any similarity between legitimate activities and Ponzi schemes ends, though Perry seems ignorant of this.
Perry boasts that he was an awful student. Instead of being dismissed as a know-nothing, however, he is a serious contender for the most important job in the world, in part because many Americans have been persuaded that the word “elite” is not an accolade but an epithet.
Egging on Perry are people whose elite education suggests they should know better, like Washington Post columnist Charles Krauthammer, who has an M.D. and a Pulitzer prize. One need not be elite, which means “the best,” to know that Ponzi schemes are criminal enterprises that depend on secrecy to defraud.
In contrast, Social Security is an open book. It publishes exhaustive financial reports, all of which have proven reliable. Social Security’s overhead, at less than one percent, is a much smaller share of its budget than any large corporation or that multi-billion dollar enterprise known as the State of Texas. And Social Security has collected more than $2 trillion in advance to help pay future benefits through 2037. That surplus makes it an anti-Ponzi scheme.
Social Security’s projected $5.3 trillion shortfall sounds huge, but it is spread over 75 years, making its impact insignificant. This minor problem would shrivel if we just went back to the levy under President Ronald Reagan, when 90 percent of wages and salaries were subject to the Social Security tax instead of the 83 percent today.
The shortfall would vanish if we reversed our policies that discourage higher education, export jobs, drive down wages and savage our manufacturing, research and development prowess.
CAT FOOD FOR DINNER
Most Americans are not old enough to recall when old ladies bought cat food on sale, not for a pet but for dinner. A half century ago more than a third of older Americans lived in poverty. Today fewer than 10 percent do because of Social Security.
More than a third of older Americans rely on Social Security for 90 percent of their income. The average benefit is just $14,124 per year, but many older Americans get only half that much, which Perry and Krauthammer tell us is more than we can afford.
Gentlemen, will that be Fancy Feast or Meow Mix for your fellow Americans who have not fared as well as you have fared?
Now let’s put the Obama plan, which has no chance of becoming law in the current Congress, in perspective. He would raise taxes on 534,000 of an estimated 166 million taxpayers in 2013 by an average of $39,182 each, the Tax Policy Center calculated. Their average income was $3 million in 2009, which is more than twice what the median income taxpayer earns in a lifetime of work.
Together these top earners made more money in 2009 than the 56.5 million taxpayers whose cash income was less than $25,000 and on average just $12,366.
To assert that we must not raise taxes at the top, but we must cut Social Security is to say this: America’s rich do not have enough and we must take from those with less to give the rich more.
Can we do better? Of course, but we won’t until we make it standard for politicians to develop their minds, and to understand taxes and public finance, enough so that we can call them elite.
(Editing by Howard Goller)