August 10, 2004,
Kerry’s Whopper Tax Hike?
The senator has limited himself to only one (painful) way of saving Social Security.
When it comes to Social Security reform, John Kerry is clear about what he is against. “I will not privatize Social Security,” he declared in his acceptance speech at the Democratic National Convention. “I will not cut benefits.”
The Democratic party as a whole takes the same position through its party platform: “Democrats believe in the progressive, guaranteed benefit that has ensured that seniors and people with disabilities receive a benefit not subject to the whims of the market or the economy. We oppose privatizing Social Security or raising the retirement age.”
It is a clear, resounding message, one that says absolutely nothing about what Sen. Kerry or the Democrats would do to solve Social Security’s looming financial crisis.
Yet Social Security will start running a deficit spending more money on benefits than it takes in through taxes in less than 15 years, according to the last report of Social Security’s trustees. The so-called Social Security trust fund, which is supposed to help pay benefits until 2042, in reality contains only government bonds. It is essentially an IOU. While few people doubt that those benefits will ultimately be paid, the federal government will still have to find the money to pay them.
And a lot of money it is. In 2018, the first year that Social Security faces a shortfall, the cash deficit will exceed $17 billion. That’s almost as much as Kerry has proposed in increased spending on Pell Grants. By 2022, the annual Social Security deficit will have grown to roughly $100 billion, as much as Kerry would spend for a proposed energy trust, increased veterans benefits, fully funding Head Start, and increased spending on homeland security. By 2027, with the annual deficit approaching $200 billion, you can add in his proposed increases in aid to state and local governments, his national service plan, and science and technology research. And so it goes.
Overall, Social Security now faces unfounded liabilities in excess of $26 trillion. One has to wonder where Kerry plans to get the money.
Actually, it is all too clear where the money will come from. As former President Bill Clinton pointed out, there are really only three options for Social Security reform: raise taxes, cut benefits, or invest privately. Since Sen. Kerry rules out private investment or benefit cuts, he could legitimately be accused of implicitly endorsing tax increases.
And mighty big tax increases they would be: a 50 percent increase in the payroll tax or the equivalent. This would be a tax hike far higher than what Kerry would “save” by rolling back parts of President Bush’s tax cuts even if he hadn’t already promised to use those savings to fund other government spending.
Not that financing is the only problem with Social Security. The program already provides today’s workers with a low, below-market return on their tax “contributions” to the program. The program unfairly penalizes African-Americans, working women, and others. Workers don’t own their money. Nor do they have any guaranteed right to their benefits. In short, it is a program crying out for reform.
But Sen. Kerry continues to duck the issue.
Frankly, that’s not good enough. No one should be running for president if he can’t stand up and tell the American people what he would honestly try to do about Social Security. President Bush has made his position clear. He would allow younger workers to privately invest at least a portion of their Social Security taxes through individual accounts. You can agree or disagree with that idea, but at least you know where he stands.
If Sen. Kerry plans to raise taxes to prop up Social Security, he should tell us. If he has another idea, he should share it with us. If he believes that the current program, with all its problems, is the best we can do, he should say so.
Sen. Kerry says that he has “reported for duty.” But on one of the most important domestic issues facing this country, he has been AWOL.
Michael Tanner, director of the Project on Social Security Choice at the Cato Institute, is the editor of the new book, Social Security and Its Discontents: Perspectives on Choice.