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No Cuts to Social Security

August 17th, 2010 · No Comments · Capitalism, Politics, Populism, taxes

Since 1980, the Republican Party has been made up of Conservatives and since Bush the First’s term made up of Neoconservatives. In the early 1980s they received a gigantic tax cut, reckless and foolish in the extreme…from a top rate of 74% down to a top rate of 28%.

That set off a huge conspiracy of sorts. The idea which became so popular was to say that we can have our cake and eat it with frosting and ice cream. The Conservative wing of the Republican Party, which had been frozen out because they were, frankly, kind of nutty had been thrust into power because of Reagan’s ability to act the part of a President on television. He looked and acted like a President, so people believed him.

The fact is, however, that he had a rather silly economic policy that proved disastrous. By the end of his two terms, the national debt had gone from $800 billion to $3 trillion. It was astonishing. But the problem was that, while there was strong economic proof that the economics were voodoo, leading to deficits, the Conservative Republicans continued the lie, which continues to this day, that deficits don’t matter.

Of course if you don’t care whether there is an American federal government or whether soldiers get paid, or widows and orphans and elderly and veterans…why would you care? The Conservative deficit-spending plan was good for the very rich, who were making an additional $125,000 per million and corporations who had 35% tax rates but were paying zero in taxes because of Conservative loopholes.

Then along came Junior Bush. Bush the Much, Much Lesser. With him came Cheney and the Neoconservatives. Led by the ultimate pragmatist, a man with the impassive, cynical sensibilities of a concentration camp guard, Karl Rove, the Neoconservatives decided that they would loot the government by giving contracts for everything to their political supporters. They even started a war to give contracts to Blackwater and Halliburton.

Despite the fact that, during Clinton and Bush the First, we raised taxes and eventually had the greatest period of prosperity since the 1970s, we were told that taxes were still too high. So Bush cut taxes twice and created two wars….one of which for certain was totally unnecessary, and made the very wealth even wealthier.

The number of wealthy was increased under Reagan, Bush First and Bush Dimswitch. In 1980, CEO pay was 40 times average worker salary. Today it is 300 or more. Some studies say 500 times the average worker. That kind of income over any sustained period of time, even several years, tosses you into the category of the extremely wealthy, as opposed to simply one of the high earners.

If the CEO makes ten million how likely is it that the top executives will make a great deal less? Not very likely if he or she wants to keep his job. So now you have a group of senior executives making a hundred times or so what the average worker makes. And paying effective tax rates after numerous deductions of around 20%. In other words, Uncle Sam sees less and less from higher and higher incomes of the very wealthy.
And no one is investing. Many top execs face this decision. Invest money in a risky company where it is possible to make a fortune or have a relatively high return over a long period of time. Or, buy a yacht or a home at the beach. A lot of people are going to go for the immediate personal gratification. They have no incentive to do otherwise.

On the other hand, if we say that the federal government will take 55-75% of your income over a certain level if you do not invest it in domestic manufacturing with U.S. jobs, then a lot of people will do just that.

It isn’t a tough decision. Invest in U.S. corporations, in our domestic economy…a good thing…with the possibility of getting rich. Or pay taxes. Not a tough decision when the potential is to pick up 5 times your original investment in several years and pay taxes only at the 15% rate.

What does this have to do with Social Security? If the country is solvent, then Social Security isn’t even a problem. It isn’t right now…at this point…anyway. Social Security only becomes a problem in 2037, which is quite a ways off, which is not to say we should ignore it. If we adopt a top-rate increase to 55%, our problems are solved.

But should we even be discussing Social Security? What is Social Security? It is an insurance program paid for by citizens in which their allocated funds are transferred to another citizen to assist in living costs for that period after retiring from work or becoming too old to work. The citizen who paid in is supported by a subsequent citizen not yet on the receiving end of the equation.

This fund has not only been in surplus until recent years, but this fund built up a surplus of $2.5 trillion to fund future obligations. In 2009, for example, Social Security ran a surplus of $137 billion. And surpluses will continue off and on again for the next few years and benefits would not have to be reduced until 2037 for anyone until 2037 if we do absolutely nothing.

But the point is that we have had surpluses in Social Security and about $100 billion a year has been used for other things in the government. So, from a strictly internal accounting perspective, we have borrowed from Social Security to fund wars and other things. The question is: how do we put it back?

The answer is pretty clear. We raise taxes on the people who made the most money from borrowing funds from Social Security. We raise taxes on the top 1% up to 55% or higher and we offer incentives to invest in domestic industry so that the higher tax rates will actually increase growth in our domestic economy and increase tax revenues at the same time. In other words, we pay down the debt and we create more jobs.

This makes sense and it is the only option that should be considered.

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