The Register Citizen (Torrington, CT)
Bringing back ‘voodoo economics’
In the 1980 Republican primary that pitted long-time civil servant George H.W. Bush against former California Gov. Ronald Reagan, the eventual nominee and president enlisted the advice of a little known economist, Arthur Laffer, who demonstrated on a napkin an economic theory that Bush labeled “voodoo economics.” Briefly, the napkin showed the relationship between the marginal income tax rate and the amount of money raised by the federal government in taxes. The takeaway from the drawing was as powerful then as it is today. What became known as the Laffer Curve purportedly shows that by lowering the marginal tax rate, federal revenues rise and the federal deficit falls. This is the core of what is also known as supply side economics and was the theoretical fuel for the 1981 tax cut and the 2017 corporate tax cut. It was voodoo economics then and it is voodoo economics now.
Fast forward, and now President Trump has dared to touch the so-called third rail of American politics, the Social Security system, by proposing that not only should we suspend the payroll tax in order to spur economic activity during his recession, we should eliminate the payroll tax — the source of revenue that supports the Social Security system. When pressed on how the Social Security system would be funded without access to payroll taxes, his response apparently is a shoulder shrug and he guesses where the rest of the money comes from — general income tax revenues.
It would be easy to dismiss this latest form of voodoo economics as the musings of a desperate politician hoping to secure his base, but eliminating the payroll tax does not seem remotely in the interest of his base of blue-collar noncollege educated white voters who will undoubtedly rely heavily on Social Security in their own retirement. It is understandable how some business owners and corporations would welcome not contributing their current share to Social Security, but even among business owners and corporations, it takes a certain type of extreme capitalist who does not care one bit about the health and well-being of their workers now or in their retirement.
This is a nonsensical policy recommendation from a president who has made other nonsensical policy recommendations and attempts to implement these policies either by law or executive order. This history is why we should treat his nonsense seriously and take the time to educate the American people and in particular, his supporters, of what this could mean for them.
Social Security payments
If anything, the next president should raise Social Security taxes by eliminating the maximum income taxed.
currently go to one in six Americans and 97 percent of Americans over 60 are receiving or will receive Social Security. Social Security taxes are paid on income up to $137,700.00. Workers and employers each pay 6.2 percent of income up to $137,700 into the system. The average Social Security retiree receives a monthly payment of $1,514 or about $18,164 per year. The United States ranks 25th in the world in the generosity of our Social Security system as measured by average payments as a percentage of average income. We are behind countries such as Austria, Italy, Finland, Israel and France.
Your Social Security payroll taxes pay for current recipients of Social Security. There is no “lock box” that your taxes go into. This is a social contract between Americans whereby current workers pay for retirement benefits of the currently retired population. If we stop contributing to Social Security, what happens to this social contract that binds younger Americans to older Americans?
The president’s musings on eliminating the payroll tax if he is re-elected is one of the most dangerous policies he has offered. Not only is it dangerous — this policy recommendation is a fraud. It promises current workers income, but it takes that income away from current retirees. Who is to guarantee that future congresses and presidents faced with budget problems would not decide to cut Social Security payments because those payments are paid for from the general fund as opposed to dedicated taxes on payroll?
If anything, the next president should raise Social Security taxes by eliminating the maximum income taxed. There is no financial or programmatic reason why payroll taxes should be limited to incomes up to $137,700. Eliminating this cap, even if the marginal tax rate is lowered, could go a long way to guaranteeing the soundness and fairness of the system, and provide older Americans with the economic security they need in their golden years.