MISINFORMATION ABOUNDS WITH SOCIAL SECURITY REFORM
April 12, 2005
Social Security's problem is that attempting to provide rising real benefits to millions more seniors would require debilitating taxes on future workers -- thus discouraging work, slowing the economy, and exacerbating the fiscal dilemma. That is why this problem "cannot" be fixed with higher taxes: The threat of higher taxes is the Social Security problem, explains economist Alan Reynolds (National Review).
There are many other myths about Social Security, says Reynolds.
Myth: The federal retirement scheme isn't bankrupt.
- Social Security will start paying out more in benefits by 2018 than it takes in tax revenue and this money will have to come from somewhere.
- Making up for this shortfall will require some $200 billion to every budget deficit by 2027, and more thereafter.
Myth: Raising the cap on earnings subject to Social Security taxes from $90,000 to $140,000 is a good idea.
- Under the current rules, paying higher taxes entitles taxpayers to larger benefits, leaving little net effect on the program's solvency.
- Raising taxes on professionals and the entrepreneur class would have devastating economic consequences.
Myth: Transition costs to private accounts would be prohibitive.
- Bookkeeping aside, there would be a net zero effect on fiscal imbalances of either Social Security or the rest of the government.
- Social Security's unfunded debt would not change in the slightest, nor would the overall long-term government budget.
Myth: Social Security is a good deal for most people.
- In 2004, the average monthly Social Security benefit was $911 a month, while the maximum benefit was just twice that amount; under the Supplemental Security Income program, for those who did not work enough to qualify, Social Security pays $428 a month
- In other words, if you paid the maximum tax for 40 years or more, your benefit will be only about four times larger than if you never paid a dime.
Source: Alan Reynolds, "Myths About Social Security," National Review, March 14, 2005.
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