Social Security Tax Hike Feared

Washington - Social Security taxes will have to rise by half if lawmakers don't revamp the giant program, President Bush's budget chief said Friday as the administration sought support for its overhaul plans.

The comments by Joshua Bolten came as Democrats accused the administration of hiding the costs of its plans for shoring up the pension system for the elderly and disabled.

The White House has talked about letting workers voluntarily divert part of their payroll taxes to investment accounts they would control but has provided no detail.

Democrats say the model most often described would cost more than $2 trillion over the first decade alone and hasten the program's fiscal problems.

In remarks Friday to members of the U.S. Chamber of Commerce, Bolten said the 70-year-old program has failed to change with the times. The number of workers paying Social Security taxes has shrunk compared to the number of retirees whose benefits they are supporting, yet more than 20 tax increases in recent decades have not fixed the imbalance, he said.

"All these tax increases did was push those problems out to be solved another day," Bolten said. "That day has arrived."

$600 Billion a Year

Bolten revealed no new information about what Bush will propose. Trustees who oversee Social Security say the program will fall $3.7 trillion short of its obligations over the next 75 years, and Bolten said the problem will grow by $600 billion each year it is not addressed.

"If we do nothing to fix Social Security, we will eventually need to raise Social Security payroll taxes on Americans by about 50 percent," he said.

Such an increase would stifle job creation and prompt employers to lower wages, Bolten said.

The White House is considering letting workers divert up to two-thirds of the 6.2 percent paid in payroll taxes into investment accounts, up to perhaps $1,000 to $1,300 a year, administration officials have said.

Bush has said retirees and people about to retire will not see their benefits reduced.

Lower Benefits Mulled

To help make up for lost revenue, the administration is considering reducing the benefits of future retirees, but it has not specified for whom or by how much. That has left an opening for attacks by Democrats.

"We have seen this administration use exaggeration and distortion before in order to advance its ideological agenda, with painful results," said Sen. Jack Reed, D-R.I. "The kind of plan the president supports only achieves solvency for Social Security through massive cuts in guaranteed benefits. Private accounts actually weaken the solvency of the program."

Bush's plan won't be included in the 2006 budget the president proposes on Feb. 7, but Bolten said he expects more details about the Social Security proposal to be revealed by then.

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Myths, Half-Truths and Exaggerations
By Jeanne Sahadi
CNN/Money

Thursday 13 January 2005
Here are just 5 swirling around the Social Security reform debate.

New York - The Social Security debate is shaping up to be quite a noisy battle of idealogues, politicians, pundits and PR specialists.

That means truth - or at least the whole truth delivered in context - is sometimes sacrificed or exaggerated by both sides in the interest of making their point. Oh, and your friends and neighbors may have a few things wrong, too.

So beware the blarney.

In hopes of setting the record straight (or at least straighter), here is a starter list of myths, half-truths and overblown facts that have been flying around.

Half-Truth/Exaggeration: Social Security is going bankrupt. Social Security is not going bankrupt.

If you define "bankrupt" as not being able to pay your obligations in full, then you might argue Social Security will be bankrupt come 2042, using projections from the Social Security trustees, or 2052, using estimates from the Congressional Budget Office.

That's when they project the system will have exhausted its surplus, which it will begin tapping in 2018 when there is less revenue than needed to cover promised benefits.

By that logic, though, you also might argue that the U.S. government - with its roughly half-trillion-dollar deficit - is or will be bankrupt.

Some people have the impression that "bankrupt" means penniless. A full 50 percent of non-retired respondents in a recent USA Today/CNN/Gallup poll said they didn't think Social Security would be able to pay them a benefit when they retire.

Not true, according to government estimates.

The system still will be taking in enough revenue to cover 75 percent to 80 percent of what is currently promised.

What's more, even if benefits were reduced to that level, they still would be higher in today's dollars than what current retirees are getting, according to CBO estimates.

Half-Truth: The system faces an $11 trillion shortfall.

$11 trillion is the number President Bush often uses to illustrate why he considers the system to be in crisis.

It is based on projections from the 2004 Social Security Trustees report, a measure in today's dollars of the projected shortfall over an infinite time horizon. (The actual number in the report was $10.4 trillion.)

So what's the problem? A shortfall measured over an infinite time horizon has limited value to policymakers, according to the nonpartisan American Academy of Actuaries.

The health of Social Security is typically measured over 75 years. (The estimated shortfall over 75 years is $3.7 trillion.)

"Many observers question the reliability or usefulness of calculating Social Security's unfunded obligation over 75 years. Calculations over an infinite period are even less reliable," an Academy report noted.

A more digestible way to express long-term shortfalls is as a percentage of taxable payroll. That's the portion of your wages paid into the system. Currently, it's 12.4 percent - half paid by you and half paid by your employer.

Using assumptions made by the Social Security trustees, to bring the system into actuarial balance over the next 75 years, the payroll tax would need to increase today by 1.89 percentage points, to 14.29 percent. Over the infinite time horizon, it would need to increase by 3.5 percentage points, to 15.9 percent.

Half-Truths: There is a surplus. There isn't a surplus.

Here's what we know: Social Security has collected more than it has paid out for 20 years.

The excess money has been loaned to the U.S. Treasury in exchange for special-issue Treasury bonds.

Those who deride the notion of the "surplus" refer to such bonds as nothing more than pieces of paper in a drawer.

Here are two of their complaints: 1) the money lent to the U.S. Treasury has already been spent on things other than Social Security; and 2) paying back the money means the government will have to borrow more money, raise taxes, cut spending elsewhere or reduce benefits.

Those who argue the surplus is very real note that the special Treasury bonds are backed by the full faith and credit of the U.S. government.

So unless the government defaults on its debt - which it has never done and is not likely to do - it will honor its obligations to Social Security when the system needs to redeem those bonds in order to continue paying benefits in full.

(For more on the contentions about Social Security's surplus.)

Myth: Benefits will be cut for today's retirees.

In a recent USA Today/CNN/Gallup poll, 32 percent of retirees said they thought their benefits would be cut because the Social Security system wouldn't be able to pay them in full.

President Bush, who favors partially privatizing the system, has said time and again that any changes to Social Security will not affect the benefits of current and near retirees.

Granted, the president hasn't defined what he means by "near" retirees, so for people between the ages of 50 and, say, 60, a change in promised benefits is a possibility.

But it's fair to take the president at his word that current retirees won't see a change at all.

Besides, cutting seniors' benefits is a political minefield and is the reason Social Security is often described as the third rail of American politics.

What's more, under the system's current structure, it's projected to be able to pay benefits in full as promised for at least another 37 years.

Myth: Social Security benefits are guaranteed.

Technically, they're not.

The Social Security Act of 1935 specifies that Congress has "(t)he right to alter, amend, or repeal any provision of this Act." And it's certainly done so in the past.

So the benefits for future retirees scheduled under the current system might best be described as "promised."

Comment: IF you haven't figured out yet, do you really think that corporations are going to stand around and be raped by YOUR current goverment ?

IT WILL BE AN EXODUS, and YOUR job...have fun while it moves offshore...WHEN will you sheeple do something ???