Google+
Close
The Pence Tax Increase
Strange principle that opposes only tax increases that haven't already been scheduled.


Text  


Ramesh Ponnuru

In a recent Wall Street Journal commentary titled “No New Taxes,” Congressman Mike Pence (R., Ind.) urged the Bush administration to disavow Social Security reform that includes a tax increase. While the congressman’s instinct to oppose “new” taxes is laudable, in this case he is unfortunately off the mark. Put simply, Rep. Pence is ignoring — as are many otherwise sensible Republicans — that American taxpayers already face an enormous tax increase if Social Security continues unchanged.

Advertisement
Social Security faces a $3.8 trillion cash deficit over the next 30 years. From the point of view of an accountant — or the policymaker eager to duck the issue — Social Security won’t be in financial crisis during those years because it can redeem the bonds in its much-ballyhooed “trust fund” to make up the deficit. Yet that’s no help to working Americans since Social Security’s assets are really just taxpayer liabilities. Trust fund bonds will be exchanged for income and corporate tax revenues, which (along with payroll taxes) will be used to meet Social Security’s obligations. The trust fund, in other words, doesn’t exist; it just means we “trust” Washington to use our taxes to pay retirees, which will certainly require raising them.

At first Social Security will require only modest amounts of general revenue, and thus only modest tax hikes or spending cuts. But in twenty years, Social Security will require more than $200 billion dollars — that’s roughly three times the budget of the Department of Homeland Security.

Perhaps Rep. Pence assumes that Congress won’t increase tax revenues to meet these obligations. It’s theoretically possible that Congress will at long last eliminate unnecessary agencies and programs, thereby freeing up resources to pay Social Security debts — just don’t count on it. No one who’s ever seen Congress in action believes this will happen, particularly when you consider the magnitude of cuts (entire Departments and programs) that would be necessary to meet Social Security’s obligations. And even if the dream of massive spending restraint were realized, surely conservatives like Pence would still disdain a ballooning public pension system that devours more and more of the federal budget and more and more taxpayer resources.

In reality, of course, Congress won’t reduce spending and taxes will rise. By 2040, Social Security will require 17 percent of payroll — the equivalent of a nearly 40-percent increase above the current payroll tax. When the trust fund is finally exhausted, current law requires massive benefit cuts, letting taxpayers off the hook. It’s hard to imagine, however, that any group of politicians would allow seniors’ Social Security checks to be slashed. Taxpayers are sure to lose when squaring off against this most politically powerful demographic.

Congressman Pence — an honest-to-goodness champion of fiscal sanity — is correct that tax increases aren’t the way to address Social Security’s many flaws: Social Security’s abysmal finances are only the tip of the iceberg. The system is a terrible deal for young workers. It also fails to provide individuals with the ability to save, invest, and build a real retirement nest egg. Increasing taxes only makes those problems worse.

Yet urging fellow Republicans not to pass a “bad” bill tacitly ignores the way current law is the enemy of limited government and low taxes. Conservatives must be clear on this point: Retaining the status quo would be a big victory for big-government liberals. It means massive tax increases and the continued bloating of the federal government.

No, Republicans shouldn’t give up their principles to support reform for its own sake. Yet it’s a curious principle that insists only tax increases already scheduled under current law — regular increases in the wage cap and general tax increases to pay back the trust fund — are acceptable to conservatives. If, for example, an additional one penny increase in the amount of wages subject to the payroll tax could be coupled with personal accounts and the much-needed scaling back of future benefit growth, Republicans could rightly rejoice. So why draw the line at zero “new” taxes?

That isn’t principled; it’s foolish. Republicans must remain committed to transforming America’s tax-and-spend New Deal relic into a system based on savings, investment, and individual ownership. This is the only way to protect the next generation from a crushing tax burden. Yet the reality is that Republicans cannot pass major reform of an entitlement program absent Democrat support. To get Democrats to seriously discuss the program’s future, all options — even tax increases not scheduled under current law — must be on the table. It’s the only chance supporters of limited government have got.

Carrie Lukas is the vice president for policy and economics at the Independent Women’s Forum. She is the author of The Politically Incorrect Guide to Women, Sex, and Feminism.



Text