Tax cuts being proposed by presidential hopefuls would rob Social Security to reward the rich
It is a presidential election year, and that means we can expect to hear candidates promise us the moon, the stars, and even more, if we will only give them our vote.
Usually at least one of the candidates will try to buy his way into the White House by offering everyone a tax cut. This year is no exception. George W. Bush was the first one to jump on that bandwagon, but he was quickly followed by others.
In the past, the promise of a tax cut has been a very effective way to increase your percentage of the votes. In 1988, Bush's father even managed to win the presidency by going only halfway there -- he promised no tax increase.
But this year the ploy doesn't seem to be working. Bush offered his tax cut in November. By January, the only people willing to say they liked the plan were diehard Republicans backing Bush. Even voters in New Hampshire, who are legendary for their aversion to taxes, ignored the plan, voting for John McCain by a two-to-one margin.
In fact, when we look back over the last few years, we discover the same thing. In 1996, Bob Dole ran on a platform of cutting taxes. He lost. In 1998, congressional Republicans ran on a tax-cut platform. Democrats gained five seats in the House.
It looks like the American public is smarter about tax-cut proposals than some politicians want to believe. The only effects most tax-cut plans would have would be to reduce taxes for the wealthiest Americans while threatening the future viability of Social Security.
Take Bush's plan, for example. On the surface it sounds good, but an in-depth analysis by economists at the nonprofit watchdog organization Citizens for Tax Justice (CTJ) shows it mainly benefits the rich, it actually raises marginal income tax rates for some single parents, and it would take $1.7 trillion out of the U.S. government's budget, threatening the future of Social Security.
Even Mortimer Zuckerman, the conservative editor-in-chief of U.S. News & World Report came out against the plan. In a February 21 editorial, he wrote, "[Bush's] tax-cut plans would risk all our economic gains for a rerun of the recessionary 1980s."
The problem with these tax cuts is that they spend the surplus that government economists are projecting over the next ten years. So far, the only surpluses we've had are in the Social Security funds. Economists tell us that soon we will see surpluses without counting the Social Security funds, but those surpluses haven't arrived yet.
And if we let politicians try to buy our votes with tax cuts, those surpluses never will arrive. The projected surpluses are simply not that strong.
Over the next decade, the Congressional Budget Office projects non-Social Security budget surpluses of $838 billion, assuming that congressional spending stays level, rising only with inflation. If you assume that congressional spending rises with population growth as well as inflation, these projected surpluses fall to only $399 billion. But it is likely that congressional spending will keep pace with the growth of the economy. If it does, the non-Social Security surplus disappears entirely.
The Bush tax cuts would cost $1.7 trillion over the first nine years (including $265 billion in added interest costs). As a result, they would far exceed all reasonable projections of upcoming non-Social Security surpluses. Congress would have to dip into the Social Security trust fund to pay for the Bush tax cuts.
In fact, over the next decade, the Bush tax plan would use up between 41 percent and 78 percent of projected Social Security surpluses. As CTJ Director Robert S. McIntyre says, "Gov. Bush may somehow think he can have a giant tax cut for the well-off and protect Social Security at the same time, but the figures show he's simply wrong."
It is important that we not allow Congress to use our hope of surpluses to enact tax cuts that endanger Social Security and Medicare. Instead, if we do experience surpluses, we ought to begin paying down the federal debt.
The federal debt is over $5 trillion, with $3.6 trillion in the hands of individual investors. As we pay off the federal debt and these investors no longer have U.S. Treasury notes to put their money into, they will invest in the private sector -- in other words, they will invest in business. The increased business investment should help keep our economy growing.
In addition, in the event of an economic downturn, like the one we experienced in 1990, we could use our surplus to stimulate the economy. In 1990, that was impossible, because we still suffered from the enormous deficits brought on by the failed economic and tax policies of the Reagan and Bush presidencies.
The presidential campaign will go on for another eight months. In that time, I have no doubt the subject of tax cuts will come up many more times.
Let's not get fooled by election-year promises. Enacting a major tax cut now will only weaken Social Security later. None of us wants to retire only to learn our social insurance fund is bankrupt. Let's keep a clear head about taxes.