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Shadow Government #44
Too tempting
by John A. Jackson
Only a handful of radicals want to trim Social Security withholding.
Most American leftists, "Shadow Government" among them, 1. disbelieve the rosy economic forecasts and 2. strongly favor wiping out the national debt.
But cutting FICA-ah, there is a true temptation.
Tax cut talk thrills the air above Washington today like blood swirling in shark-infested water. No doubt reductions will be made, just as if prosperity were as certain as dawn.
George W. Bush's segue into fantasyland Tuesday night about guarantees it. Now you can favor both debt reduction and huge tax cuts for businesses and the rich; you just redefine the debt you want to eliminate. Bad debt will go; good debt will stay. Must stay, the President says.
Such talk makes fiscal prudence seem even more intellectually respectable-but much, much harder politically.
Which brings us back to FICA. A whopping 80 percent of American taxpayers return more for FICA than for federal income tax. Even worse, FICA is regressive: duke or chambermaid, we all pay the same percent, up to $80,400 a year, and nothing above that.
(My source for those numbers is refdesk.com, Colin Powell's favorite web site.)
On the other hand, if our aim in tax cutting is stimulating a weak economy, as the President periodically asserts his is, reducing FICA withholding is infinitely quicker and surer for putting bucks in circulation. Income tax cuts take forever to kick in, especially cuts in the top marginal rates such as those Bush favors.
The theory is good, too. If, as Shadow Government argues, today's economic threat comes from surplus of supply and weakness in demand, bolstering average folks' capacity to buy is simply sound economics.
Put it another way. Real wages have lagged for nearly 30 years, while the society's ability to produce new things has advanced rapidly.
Keeping up a middle-class life meant first that most families now send two workers out into the economy. Then those wage earners had to work ever harder: more hours, more part-time jobs, less time for kids and community. Then to keep the game going, credit was extended, ever more credit.
Now America's workers work harder, longer, more intensely, have shorter vacations and drown in an ocean of debt.
Do you doubt it? Drop by a pharmacy sometime and just watch the staff at work. Old-style "sweated" labor had nothing on the new methods.
Of course, tax cuts are popular-no matter whom they really favor.
But cutting FICA? What about Social Security? Good question.
Social Security is in the black now, has been for many decades and, the economists firmly expect, will remain in the black through 2010. The rest of us should be doing so good.
But won't today's Social Security surpluses protect us against red ink when the Baby Boomers retire? Not exactly. Social Security surpluses go in the pot-to reduce the national debt. There is no separate, protected pot for Social Security.
When the Boomers retire, they will find the surpluses all right -- as IOU's from the government.
Is that kosher? Probably. U.S. Treasury notes are about as safe an investment as you will find. But they sure aren't cash.
Pretending today's Social Security surpluses are real-why, that's fuzzy math. You know what we think about that.
John A. Jackson may be reached at TomShadwell@cs.com. ER