Apologies, I spent St. Paddy's day with my family and didn't have a chance to respond in depth until now.
If we are treating Social Security as separate from the rest of the Federal Budget, then the solution is simple. Eliminate the cap on Social Security taxes. This fixes Social Security into the future as far as anyone cares to look. You could probably even increase payouts across the board.
Treat Social Security as part of the overall budget and we have even more options. Raising a variety of different taxes (carbon taxes, financial transactions taxes, etc.), cutting our insanely bloated military, ending tax deductions for oil companies, allowing Medicare to negotiate drug prices, etc. As I said, its all a matter of priorities.
I don't care which way we do it, lets use the unified budget as it's simpler and less confusing. Of course you can raise
other taxes to make up for the shortfall, but
as it stands SS outlays are likely to top out at ~6% GDP in a decade or two, the results of that have already begun to and will continue to crowd out other spending. However keep in mind that any taxes on corporations or other businesses are actually paid for by those that buy, work for, sell to, and invest in those corporations/businesses. Being as
survival is the most important thing to those entities, and that's usually predicated on making a profit (and when they're not convincing people they will be soon) you can imagine what their priorities might end up being on who absorbs that loss. They need the profits and the customers most, what they might be more inclined to cut back on is employees and materials, you know, 'downsizing' 'cutting back' and 'making do.'
No matter how high tax rates were, even in the days when we could
also raise a significant amount of revenue from tariffs and the like, (which amounts to a consumption tax on foreign products at the low levels we
usually ran when we did so) the US has never been able to maintain higher than ~20% GDP (federal government) revenues. In part that's because there's
another 15% or so GDP that's also government spending, coming from state and local governments, and also because the constitution restricts the federal government in levying taxes directly, which is why the income tax required a constitutional amendment. Our inheritance taxes are on the
income received by survivors, which is why the truly wealthy use trusts and stuff to avoid them.
Not sure why that would be the case. Wages are a tax deductible business expense, as is the FICA tax. If an employee is profitable, than raising FICA would not change that (although he would not be as profitable). If an employee is not profitable, then he is going to get fired regardless of what the tax rate is. And relatively few people make over the cap in the first place.
Here's why: some business owner's
profits (of which the top 3% of business owners are responsible for ~50% of small business jobs) are often taxed at the individual rate and they directly see the totality of the 12.4% SS tax and the uncapped Medicare rate of (now) ~3.8%. Raising that rate would mean that
just in payroll taxes a business owner would owe on the order of 16.2% for every dollar made over 100k,
then they have to pay 28% and upwards on marginal rates,
then state income taxes (in some states like yours they get deductions but not all) plus any local ones that might apply, thus in the end they're looking at tax rates of over 50% on their income
just in those taxes. Business owners take risks, they can go out of business even--they don't have a guarantee of profits--and sometimes they need the big years to get through the lean years and justify the risks they're taking.
At the same time, because of the
clever way SS was set up, if the payroll tax is
increased then business owners end up either having to tell their employees 'hey the economists say the burden of the payroll tax falls on the workers so since they eliminated the exemption of over ~100k I'm gonna have to reduce your salary by 6.4% for every dollar you make over ~100k.' That's probably not gonna sell well, so he might just cut back or have to eat that 6.4% extra over ~$100k, though making note to keep that in mind for any new hires (someday down the road) and hire them at ~$6.4% less.
Point being all of this increases labor costs
and reduces profits which works as a disincentive to expansion and hiring. I know they teach basic micro like everyone is a little factory worker and they can figure down to the penny just what each employee contributes to production and whether they make a profit of it, but that's often a nebulous concept with many businesses and putting a direct hit on a business owners profits can harm employment all across the board, then the ones with high-end employees like engineers, scientists, doctors, lawyers etc see those labor costs go up significantly.
Lemme put it this way, the last time they raised the FICA tax circa '83 they phased it in over the course of almost a decade, mainly to lessen the impact the increase from ~10% to 12.4% would have on the economy. This would be less broad, of course, but hit many business owners directly
and hammer many professionals,
especially their employers.
Besides, while I hear conservative whining on about how dreaded tax hikes will cause economic ruin, as soon as you ask about the economic effects of cutting Social Security benefits, you just don't get any straight answers from them.
That's 'cuz there's not going to be any cuts in SS spending. It's also because transfer payments have no inherent
economic value, all it amounts to is a dollar being spent by someone else. Please understand I don't mean imply it has no
social value, but in simply moving those dollars from one guys paycheck to another's doesn't actually produce any value, and might even inhibit
supply (of labor) by encouraging people to retire earlier. I realize that's your aim, but it is more likely to have a negative effect on the economy rather than any positive value. More people working (or available to) is better than not having enough, at least to the
potential of an economy, though it is less meaningful if there's a surplus of labor like we have now.
I'm merely using that as an example because you appear to understand how SS is funded, that it goes from one guys paycheck to another, and that it all goes through the General Fund and thus I also realize we
could fund SS through the income tax or
whatever tax, the system as it's set up is just a relic of a bygone age. Note also that I'm not saying that
government spending has no value, but keep in mind that transfer payments aren't counted in GDP under government spending for the reason above. I'm also not saying that government spending (especially deficit--even transfer payments) cannot be good in the short term for increasing GDP, but that the payroll tax mechanism is a good heuristic for why social security doesn't actually contribute to the economy, it just takes a dollar one person might have spent, saved or invested and gives it to another guy who will spend, save or invest it. Odds are high that the one it was taken from is more likely to have dependent children and less wealth.
That's also just a general observation, not anything specific to our current situation. Also I want to reiterate that
doesn't mean that dollars borrowed and spent won't have the effect of increasing short-term GDP, often through increased consumption. However increasing short term GDP is not necessarily the best goal in some cases, we have more profound problems that a big round of goodies across the board (or to mainly Dem constituencies it appeared from a cursory glance
) isn't going to address.
Strip off the political labels, and the Progressive Caucus plan
polls quite well thank you.
I'm sure it does! It makes it sound so
easy. That's why it might be a good reason to put it on Obama's desk next to Ryan's and see which one Obama signs. It might be quite revealing to find out what people would say about it were it to have a chance of passing, and were it to be passed...well...let me put it this way: we'd provide the rest of the world with plenty of empirical economic evidence of how certain economic strategies work!
Considering the appalling failure that austerity has been in Britain, Ireland, Greece, Spain, and pretty much everywhere else it has been tried, I think going in the opposite direction might be a worthwhile experiment.
I read through
this description of the current budget proposal from the Progressive caucus. I will say this first: I like the way it is written, I agree with some of their assumptions and I think their heart is in the right place and that increasing employment is a worthy goal.
However, I cannot help but wonder if it's the
ultimate austerity budget! It strikes me as essentially what Greece wanted to do before reality reared its ugly head, meaning the ones they needed to finance their debt lost confidence in them and might well have taken advantage of them, which I can't say with confidence because I didn't follow it but let me just say from some things I've read
it wouldn't surprise me knowing what I do about humans and their history.
However, Greece's problem is that it's debt in relation to their economy is something on the order of 167% last time I checked, that's more than double what our (public) debt is, we don't have the same kind of problem in that regard, ours is different. Let me illustrate it this way: the Progressive caucus plan proposes roughly 700 billion in stimulus annually over this and the next two years. For just one year of that spending we could buy up the entirety of the Greek debt and give their people and economy a new lease on life. Not just a bailout, a total and complete new start.
We have a different problem, namely there's not enough (available) money in the world to allow us to finance 167% GDP debt, what's important for us is how much we can finance at virtually no (or very low)
real (meaning inflation adjusted) interest rates. For the past four years we've been able to do it, but that cannot last forever, and this budget (would highly likely) end that post-haste!
Do you understand how our (public) debt is financed? Very simply it works like this: We have roughly 12 Trillion in securities that must be continuously financed and re-financed through 'auctions.' That means the head of the treasury dept (on a regular basis) has to offer US securities for auction, to re-finance old debt that matured and the new debt that Congress requires. Lets say it's 300 billion and one Bank wants 100 billion and is willing to accept 2% interest, (which is kept secret) another financial institution wants 100 billion and is willing to to lend at 2.5%, another wants 100 billion and submits a bid for 3% while others bid for any number more but submitted bids higher than 3%. Everything gets tallied up and the ones willing to accept the lower interest rates are compiled and everyone gets the highest rate left, in this case 3%, even the ones who submitted bids below that figure.
This budget goes and kicks in the teeth a number of those who are currently financing for almost nothing some twelve trillion in public debt, and/or are directly or secondarily affected by the bond market. Roughly half our debt is held by US financial institutions and businesses, the other half mainly by our trading partners, dominated by the ones we run trade deficits with. All those proposals to stick it to businesses with 'increasing the progressivity of the income and corporate tax code' and the ode to Pigouvian taxes is likely to scare the bejeezus out of the first group, and the massive fiscal stimulus on top of all the rest of the inflationary forcers we've set up is likely to discourage the second group who doesn't like seeing the dollars they get from us and/or hold as assets around the world becoming diluted in value. So far they've put up with it, mainly because our market is a huge advantage as many countries are enriched by selling to it, but we've been pushing our luck and all that needs to happen is enough people find better places to invest their assets and/or decide it might be best in the long run to let the American economy collapse so they can go 'carpetbagging' afterward or take advantage another way. Many, foreign and domestic, own both treasuries and corporate securities as well and will be doubly irritated.
We cannot get away with expecting the people of the United States and the world to tie up their funds in (essentially) profitless assets forever. That means at some point in the future those interest rates are going to go up, thus increasing debt maintenance (which is currently artificially low) crowding out other spending in the budget like it did in the late-eighties and early nineties. If you don't think it likely and have been listening to those who've been sneering at anyone who thought it possible or probable because it hasn't yet, ask yourself this question: if it isn't a danger, why haven't we tried this before and had it work?
All those countries you mention have been going through what you call 'austerity' while we have avoided it mainly thanks to our businesses, banks and corporations--and those all over the world--subsidizing it by holding profitless American debt, how do you think they'd like it if we kicked them in the face?
What do you suppose might happen then?
