Why po­ten­tial So­cial Se­cu­rity ‘fix’ won’t work

Baltimore Sun - - COMMENTARY - By Bren­ton Smith

More help is on the way for So­cial Se­cu­rity if Sen. Chris Van Hollen, the Mary­land Demo­crat, has his way. He in­tro­duced the Strengthen So­cial Se­cu­rity by Tax­ing Dy­nas­tic Wealth Act, which would turn the es­tate tax into a ma­jor source of funds for the pro­gram.

His plan would re­turn the es­tate tax to 2009 lev­els start­ing in 2020 — de­posit­ing all of the rev­enue from this tax into the So­cial Se­cu­rity Trust Fund. Ac­cord­ing to the So­cial Se­cu­rity Ad­min­is­tra­tion, these changes would gen­er­ate enough cash to ad­dress roughly 20% of the gap be­tween pro­jected rev­enue and ex­pense over the next 75 years.

For those of us who are apt to need the pro­gram over time, that sounds like a good start. Un­for­tu­nately, this con­cept will have a very bad end for ev­ery­one.

There are two se­ri­ous mis­con­cep­tions about this leg­is­la­tion. First, the im­prove­ment in the sys­tem’s fi­nances doesn’t come just from new rev­enue col­lected from the 1%-ers of the na­tion as ad­ver­tised by sup­port­ers. The bulk of the sal­va­tion comes from the di­ver­sion of ex­ist­ing es­tate tax rev­enue — money that al­ready comes from Buf­fetts, Gate­ses or Be­zoses and their ilk — to So­cial Se­cu­rity. As a re­sult, these changes would add about $260 bil­lion to the na­tional debt over just the next decade.

Sec­ond, most of the new money is com­ing from peo­ple who have earned a lot less than those ti­tans of com­merce. In fact, the largest seg­ment of sal­va­tion draws most of its money from the es­tates of mid­dle-class Amer­i­cans in the dis­tant future. The thresh­olds that trig­ger the levy are fixed, so in­fla­tion is apt to push av­er­age peo­ple into the tax over time. To il­lus­trate the im­pact, if in­fla­tion in the future fol­lows the course of the last 75 years, peo­ple who have an es­tate of less than $250,000 will have to pay part of this tax.

To see how this de­sign plays out, we need only look to an­other fea­ture of So­cial Se­cu­rity — the tax­a­tion of ben­e­fits. Ini­tially, this levy hit less than 10% of retirees, most of whom were gen­uinely wealthy. To­day, 56% of fil­ers who col­lect ben­e­fits are sub­ject to some of the high­est mar­ginal tax rates in the en­tire tax code. These peo­ple aren’t wealthy; some of them live just above poverty.

This pro­posed leg­is­la­tion isn’t ter­ri­bly dif­fer­ent from Congress writ­ing a check to So­cial Se­cu­rity for an­other $3 tril­lion with money bor­rowed from our kids. For that princely sum, we would get a pro­jected three ex­tra years of sol­vency, to 2038. This isn’t soak­ing the rich; it is pil­lag­ing our prog­eny — some­thing at which we are grow­ing dis­turbingly com­fort­able.

Maybe three years sounds like a lot, but it comes at a high price. Pres­i­dent Franklin D. Roo­sevelt re­jected the idea of pub­lic sub­si­dies for the pro­gram. He knew that such rev­enue would amount to an an­nual bat­tle pit­ting the needs of the elderly against other pri­or­i­ties of the day. This year, Congress wants to use the Es­tate Tax for So­cial Se­cu­rity; next year it might be in­fra­struc­ture, ed­u­ca­tion or debt re­duc­tion. This pol­icy vir­tu­ally en­sures that So­cial Se­cu­rity be­comes an an­nual tar­get of the deficit hawks in Congress.

FDR fore­saw the prob­lem. He knew that So­cial Se­cu­rity would be a very dif­fi­cult sell in Congress as a use of pub­lic money. Law­mak­ers would have to jus­tify us­ing pub­lic money on a pro­gram that does not serve all Amer­i­cans equally. In fact, one-fifth of our poor­est se­niors do not even qual­ify for ben­e­fits at all. More­over, pub­lic money introduces a ques­tion of fair­ness when spouses get half of what their part­ners col­lect.

The re­al­ity is that this leg­is­la­tion would sim­ply add tril­lions of dol­lars of debt to our chil­dren’s load so that the pro­gram could con­tinue to pro­vide $50,000 or more in stipend to se­niors who are the 1%-ers that we seek to soak.

This leg­is­la­tion isn’t sav­ing So­cial Se­cu­rity, and it isn’t tax­ing the Buf­fetts, Gate­ses and Be­zoses of the world. It re­cy­cles the clas­sic tax and spend poli­cies of Washington dressed as a morally jus­ti­fied, sen­si­ble pop­ulist re­form.

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