1115.org

Senator Wayne Allard (R-CO) 1/13/05:

“The money is spent.” “I don’t believe in my own opinion we’ll be able to raise the funds to pay it back.”

President George W. Bush 2/9/05:

“The money — payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust.”

The President couldn’t be more wrong about the Social Security trust fund, but he didn’t misspeak. Instead, he tipped his hand in what could be one of the largest rip-offs of working Americans in this country’s history.

In the early 80s, pessimistic forecasts predicted that Social Security would be danger unless adjustments were made to account for the large number of Baby Boomers who would be retiring and the smaller number of post-Boomer workers who would be paying into the system. In 1981, the National Commission on Social Security Reform was created with the goal of making those adjustments. The commission, headed by current Federal Reserve Chairman Alan Greenspan, rejected altering the structure of Social Security or any cut in benefits in favor of raising payroll taxes and increasing the retirement age. These changes went into effect in 1983 and produced surpluses that have accumulated to $1.76 trillion dollars. This money is held in U.S. Treasury bonds, long the safest investment instrument in the world.

For most people, the only exposure to the trust fund was an episode of Saturday Night Live that featured a parody of the Presidential debate between Al Gore and George W. Bush where the key phrase was “lock box.” The skit mirrored one of the actual presidential debates where Gore made it clear that he wanted to protect the integrity of the trust fund and accused Bush of planning to use it for tax cuts.

By now, everyone knows that Gore had Bush pegged. Republicans can play all the semantic games they want, but even if you grant them their premise that “it’s the people’s money, we’re just giving it back to them,” they still gave it back to the wrong group of people. All workers pay 6.2% of their earnings in Social Security tax (SS or OASDI on your paycheck,) and there is a cap at $87,500 above which no tax is accrued. The higher the income over $87,500, the smaller the percentage of income is paid in Social Security tax. Unlike the progressive income tax (in which higher earners pay a higher percentage), the Social Security tax is extremely regressive. So while ordinary Americans pay 6.2% into Social Security, someone making $1,000,000 pays half of one percent.

Bush had an opportunity to correct this when he took office under the banner of tax cuts. But rather than lower taxes in a way that would affect average Americans (the ones paying a higher share of their earnings in payroll taxes), he chose to make changes that made the tax code even more regressive. Lowering the top income tax rates, reducing the capital gains tax and the tax on stock dividends disproportionately affected the very same people who benefit from the cap on the Social Security tax.

Until now, the situation was bad enough. The lack of spending restraint by the White House and Congress made the tax cuts for the wealthy more like a long-term loan because the money would eventually have to be raised again to cover the Social Security trust fund, among other things. But as the President’s dishonest and misguided plan to privatize Social Security runs into massive resistance from both Democrats and Republicans, he finds himself in a situation where he must make Social Security look like it is on life support. He started by calling it a crisis, then moved on to “flat bust” and “bankrupt”. Both of these tactics became inoperative as word got out that there is no crisis and Bush’s definition of bankrupt didn’t meet with the facts.

Never one to let the facts get in the way of pushing his agenda, Bush is now echoing the statements of Senator Allard in raising the idea of defaulting on the $1.76 trillion in the Social Security trust fund. By reducing the trust fund to a mere accounting gimmick and passing it off as moving money from one pocket to another, Bush is being fundamentally dishonest because he knows that most Americans don’t understand the choices he is making, or simply don’t care. That money represents 22 years of working Americans being over-taxed because they were told that it was necessary to save Social Security. But instead of saving Social Security, that money effectively went to pay for Bush’s $1.3 trillion in first-term tax cuts. What Bush isn’t telling Americans is that without his tax cuts, there would have been no need to suggest that the Social Security trust fund doesn’t exist.

By using the proceeds from a regressive tax to fund a regressive tax cut, Bush is double dipping on behalf of his wealthy campaign contributors. But it wouldn’t be a complete Bush plan if Republicans didn’t get to have their cake (money) and eat it too (political benefit.)

It has long been a goal of Republicans and Libertarians to encourage as much resistance to the concept of taxes as possible. Lowering taxes leads to smaller government, which in turn leads to a weakening of the Democratic party. By defaulting on almost $2 trillion collected in taxes, they will be building in a barrier to any future rise in taxes.

The genius of Bush’s plan is that in accusing him of robbing the poor to pay the rich, the Democrats will be in effect telling the country that government can’t be trusted. You can’t buy that kind of advertising, but apparently you can steal it.