The Interocitor

The Middle-Class Tax Hike

Yesterday, the President answered a question about Social Security reform, where he did not specifically reject raising the $90,000 cap on FICA payroll taxes. The media trumpeted this as some kind of support for such a notion -- not surprising as the Liberal plan for "fixing" Social Security has always been to eliminate this cap, in a classic "soak the rich" operation.

Republicans erupted, of course, as anyone with half a brain knows that raising the cap from, say, $90,000 to $120,000 would constitute a massive tax hike on the middle class -- the Republican base. In effect, federal tax for a worker making $120,000 would increase by $1900, or another 1.6% of income. Another $1900 would be paid by the employer, who views it as added salary paid. The only joy is that the employer's portion is not doubly taxed as employee income.

Meanwhile, of course, it is just these people who get the least from both Social Security as it is now, capped at about $1800/month in benefits, and Social Security-to-be. Since higher earners such as these tend to be older and in their most productive years, they benefit least from the proposed changes, which have reduced retirement benefits for those now 45-55 years old while allowing them to set aside only miniscule portions of their income in their new private accounts. While these contribution caps will increase over time, many of these older workers will be retired before that happens.

If this is Bush's Social Secuirty Reform, include me out. As much as I like the idea of private accounts, the price/benefit ratio I'm seeing is way too high.

It would make far more sense to leave everything as it is and simply invest all new net FICA receipts (and bond redemptions) in AAA corporate bonds and preferred stock. Greenspan's argument against Clinton's plan to invest in common stocks -- that government shouldn't become an owner of private companies -- remains well taken. However non-voting corporate securities, selected by an independent board, would provide much higher returns, while avoiding control. It would also end the government's shell game with Social Secutiry revenue. Once the Trust Fund is actually a Fund with real assets, rather than a low-return accounting fiction, it might be possible to wholely reform Social Security on a private basis. But right now it seems like we get a little bit of private for an awful lot of tax.

As I said, include me out.