A front page NYT story noted that Social Security benefit payments this year exceed its tax collections...In spite of the statements by the experts cited in the article, the second paragraph told readers that this event marked: "an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office." Nothing in the article or in the structure of the program suggests that there is any importance whatsoever to this threshold...
First, as a matter of logic, the Social Security surplus was spent in the same way that the money lent by anyone who buys a government bond is spent... people who own bonds expect to get their money repaid and the trust fund has every right to expect the bonds it holds to be repaid. Those who suggest otherwise are changing the rules after the fact and in effect implying that they want the government to default on its debt.
In terms of the tax burden we are imposing on the young, real wages on average are projected to rise on average by 45 percent at the point when the Social Security program is first projected to face a shortfall. This means that if we raised the Social Security tax by 6 full percentage points (way more than any projections show will be necessary), workers in 2044 will still have after tax wages that are on average more than 30 percent higher than what workers receive today.
The fearmongers like to focus exclusively on tax rates rather than after-tax income, which is the real determinant of living standards. If Bill Gates paid a tax rate of 99 percent, he would still have far more income that 99 percent of the U.S. population. This confusion of tax rates and living standards is really pernicious. In order to please the Peter Peterson crowd and the naive young people who think that he has their interests at heart, we should have a box on the tax form that will allow any worker to pay the same tax rate as their parents or grandparents (their choice). The only condition is that they will get the same before tax income as the people of the generation they select.
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=03&year=2010&base_name=nyt_invents_important_thresholand in the comments section, from david cay johnston former tax reporter on the nyt & author of "free lunch":
What the story lacked was pointing out if the Congress fails to provide full benefits to those who have paid for them in advance because of the excess FICA tax it would be a form of default on US government debt. THAT is the issue that needs a great deal of attention: reducing benefits paid for in advance is a form of default...
At its peak the excess tax (above what was needed to pay then-current retirees) equaled 4 percent of wages subject to FICA. That excess tax took away half of the savings capacity of the vast majority of Americans. Factor in the time value of money and the effect of Reagan's and Greenspan's excess FICA tax was enormous and helps explain why so many Americans are mired in debt today. Fewer than half of taxpayers have ANY cash savings, while more than half did before Reagan took office.
Because of to Reaganomics, Social Security was converted from a pay-as-you go system into a subtle way to subtle way to overtax wages and thus finance tax cuts for the rich...Without overtaxing workers Reagan would not have been able to persuade Congress to give massive tax relief to the few who paid the 70 percent (and later 50 percent) marginal rates...
he also points out the article should have come with this addendum:
The need to tap the trust fund built up from workers paying more in taxes than the system paid out in benefits over the past quarter century is expected to be temporary, lasting until the economy recovers and payroll taxes grow again. The permanent draw down of the surplus is not expected to begin until 2020, the Congressional Budget Office and Social Security Administration estimate.
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