Personal accounts for Social Security and massive future tax increases to boot … that’s what we’re in for if personal accounts are established but nothing is done to address the program’s liabilities, argues Carrie Lukas on National Review Online. She may not be right on the mark, but she’s got a point.
What spurred her to write about the topic was Rep. Mike Pence’s (R., Ind.) pledge in a recent Wall Street Journal op-ed to oppose any tax increases in the course of attempting to reform the fast-floundering entitlement program. But left unchecked, Social Security’s commitments will require an ever-growing amount of resources to be fulfilled, irrespective of unaltered tax rates.
Lucas writes that the promised benefits under the current system cannot be met with only the revenues that are brought in through the payroll tax. By 2030, Social Security obligations will consume 17 percent of payroll, compared to 11 percent today. General revenue, which is derived mostly from income taxes, will have to make up the difference.
In theory, the federal government simply could redirect resources to Social Security in the sense of reprioritizing the budget. Of course, government (not just the one in Washington) is no good at reprioritizing — or even at prioritizing. If it were, it wouldn’t be operating multi-trillion dollar annual budgets, wouldn’t have chronic budget deficits, and the national debt would still be calculable using a non-scientific calculator.
No, the government seems inherently unable to do with less. And when faced with the prospect of having to scrap entire agencies and programs to fund Social Security once payroll receipts no longer cover program outlays, Congress will balk and taxpayers will pay.
Personal accounts will alleviate this affliction, but certainly not cure it. Undertaking this measure alone is akin to someone brushing their teeth for the first time in the hopes of repairing a cavity-ridden mouth. Personal accounts are a necessary step going forward, but there is too much existing rot for that step to be the only one required.
The desire to hold the line on current taxes is understandable and noble, Lukas acknowledges, but the consequence of pursuing personal accounts while ignoring the worsening consequences of Social Security’s present flaws could lead precisely to the higher taxes conservatives seek to avoid. Of course, a high-tax future is just what the opponents of Social Security reform strive to create, hence Lukas notes that “retaining the status quo would be a victory for big-government liberals.”
But is a small tax increase necessary now to both foreclose the possibility of heavily increased taxes later and to coax Democrat support for personal accounts?
In a word, no.
At a forum sponsored by the Free Enterprise Fund, National Taxpayer Union president John Berthoud and other panelists warned that acceding to a tax increase might not seal a Social Security deal, as liberals might be emboldened to take a hard-line position of “raise taxes now, control benefits later.” Certainly, political realities cannot be ignored. Republicans cannot pass Social Security reform on their own; even when they did have control of Congress, for twelve years, they made no headway.
Policies and principles are the legislative equivalents of tactics and strategy. With Social Security, conservatives should not fear a tactical concession if it helps advance a strategic victory for the low-tax cause. However, they need not contemplate a tax increase in the process.
Suppose Republicans reached across the aisle with a proposal that might appeal to the Democrats’ rhetoric about the so-called “wealthy” making out “too well” in our society. Establishing means-testing, or an income test, for receiving Social Security benefits would fulfill such a goal.
For Republicans who hope to repeal the income tax on Social Security benefits, means-testing — which in essence is an income test whereby premiums would be adjusted based on the ability of recipient’s to pay — makes sense. Instead of a tax that collects general revenues to be squandered on the entire government, this alternative method would directly reduce Social Security’s outlays.
Those who say this would turn Social Security into a welfare program instead of the “social insurance” it is supposed to be need to be honest with themselves: Social Security has never had the force of any kind of insurance that is offered in the private sector. It is instead a transfer program wherein the government gives to one group of Americans with the left hand that which it has taken from another group of Americans with the right hand.
Consider that the advertised rationale of Social Security at its inception was to provide for needy seniors in their retirement what they otherwise could not provide for themselves. Why then would the program compel participation from each and every American regardless of need? Simply, to create dependency on government. And how well that scheme has worked: How many otherwise liberty-minded Americans cannot conceive of Social Security as anything but the universal entitlement it always has been? You can just hear that well-meaning refrain, “But the government promised … ”
Means-testing Social Security to control the growth of the program’s outlays is a good first step towards reform. The introduction of personal accounts to confer ownership instead of entitlement is the complimentary second step. If we don’t take such a path toward solvency, Americans will realize in painful ways that their government made them promises that no government could ever keep.
– John Santoliquido is a policy associate for the National Taxpayers Union.