In preparation for the coming push for Social Security reform, some liberals are now trying to argue that there is no "crisis" (a term that is almost infinitely plastic in meaning, as it can refer either ot an imminent crisis or a looming, long-term crisis) and that the system can be "fixed" by (guess what) tax increases and benefit reductions (not for present, voting seniors, mind you, but for us when we retire).
TIME FOR A THOMAS SOWELL SMACKDOWN!
Author: Jimmy Akin
Jimmy was born in Texas, grew up nominally Protestant, but at age 20 experienced a profound conversion to Christ. Planning on becoming a Protestant seminary professor, he started an intensive study of the Bible. But the more he immersed himself in Scripture the more he found to support the Catholic faith, and in 1992 he entered the Catholic Church. His conversion story, "A Triumph and a Tragedy," is published in Surprised by Truth. Besides being an author, Jimmy is the Senior Apologist at Catholic Answers, a contributing editor to Catholic Answers Magazine, and a weekly guest on "Catholic Answers Live."
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I’ve heard a statistic that it takes 3 children (per woman? or per person?) in the work force to generate enough social security funds for post baby-boomer generation retirement.
Any truth to that?
Calling social security a retirement program is a canard. It is a welfare program for millionaires and the pennyless. At 26, I have no hope of receiving anything from this program.
Talking numbers is fine, but at some point you are looking at a major societal problem when you have the majority of society (those on social security) enjoying a higher standard of living than those paying into the system. Welfare is one thing, but going to Vegas on my dime is another thing.
You want to fix social security? Simple, means test the program. Pay the full benefit for those making $20,000 in other income a year. Build a phase out up to $40,000. Return the rest of the money to the workers. BTW, include realized and unrealized income.
I’d have no problem with a means-test for social security. Like other public programs, it should be there for those who can’t afford something better. Like public housing, public schools…
Michael, the worst thing we could do is to start taxing unrealized income. That’s nothing more than taxing assets that are doing nothing economincally. Taxes that are not based on an economic transaction inherently destroy wealth.
D-E-S-T-R-O-Y.
There’s no other way to put it. If you have 1,000,000.00 in a retirement fund that you paid into all your working life, you are taxed when you withdraw it (most likely). That means that you get more at the end of the line to live on. If you are taxed each year for the gain, there is WAY less principle for you and you have to sell part of it to pay the tax. Your retirement fund would be worth a LOT less than before and your expenses would still be the same.
Some Congress-critters have salivated at the thought of taxing pension plans because of the enormous amount of untaxed money sitting in them.
At some point someone will say what about that rich guy with all that money? HE doesn’t need it! Well, who are we to say what he should do with it? What about inheritences? Most often those are transfers of assets like family businesses and farms. Those could make money if sold. Is that an unrealized gain?
According to the X42 (previous President… just can’t type the name) administration it might have been. Al Gore once got on TV explaining how a person making $250,000 a year was a millionaire. $250K X 4 = $1,000,000. And what about that extra room you don’t use? That could be rented, so it’s counted too. I remember this stuff. Couldn’t make it up if I tried.
That’s what taxing unrealized gains would lead to. Not to mention the HUGE amount of money that would be removed from the private sector and sent to the gummint. They never spend as wisely, miserly or effectively.
Taxes work best in the context of an economic transaction… Income, sales, imports, etc. Creating paper wealth in the stock market is NOT an economic transaction.
The problem with means testing is that it punishes the behavior you want and rewards the behavior you don’t want.
If both John Doe and Richard Roe had saved up enough money to give themselves $30,000 annual incomes in their retirement — which was what Social Security would have given them without it — but Richard Roe blows it all on big vacations in his last employed years, Roe ends up with need, and Doe doesn’t.
Ummm, sorry to be a wet blanket here, but I seem to agree with the ‘liberals’ that there is no problem with S.S. I also don’t think we will need to raise taxes or cut benefits (and most economists are in agreement with me here) if the economy continues to grow at the average rate it has since the post-WW2 era. The problem with trying to fix S.S. (at least with the Bush plan) is that you’re going trade implicit debt for explicit debt (around 3 trillion buckaroos) which the financial markets right now aren’t taking fully into account. This will hammer, i repeat, hammer the dollar, creating no chance at all for the ‘soft landing’ that we’ve been hoping for.
Whether or not pension plans are something the government should be in is something else all together……..
Thanks Mary and Tim for the comments.
Regarding unrealized income, we already tax this with property taxes. Secondly, in priciple, I should not have to subsidize a person’s lifestyle because they want to leave their children an inheritance. As far as destroying wealth, that would be my goal. (As far as this goes, it is really a matter of whose wealth is destroyed, mine or the SS recipient’s.)
As far as punishing those that have saved, I simply plead that it is a tradeoff. While there will be some at the margins that will apply your logic Mary, most people will still desire to be independant.
Ted, I question our ability to achieve a significant growth rate outside of massive immigration. The growth industries over the next 30 years are going to be hospices, hospitals, casinos, and funeral homes. On a macro scale our ability to be the most efficient economy in agriculture and manufacturing will further erode because of this hidden tax on them. GM has been called a health care company that happens to make cars. US Steel still has a major problem with its pensioners (going micro for a couple seconds.)
Michael,
Yes we tax property. I never have liked it. Thankfully it is done at the local level where there is more likely to be accountability to the people being taxed. The farther the taxer is from the people, the less the accountability.
If you destroy wealth, in other words capital, you destroy the very thing that helps the poor. Destroying capital hurts everyone. Capital is what provides the means to create jobs for the poor and better jobs for those gaining skills.
There is also a difference between destroying capital/wealth through taxing unrealzied gains and means-testing Social Security or cutting benefits. One is an asset, the other is an income. Decreasing one’s income is not the same as destroying capital.
Ted and Mary,
I am all for changes in social security. I don’t know where this myth of the liberals has come from all of a sudden, but there IS a problem with the system. People live longer while retiring at the same age. People draw more in benefits than they pay in on average adjusted for a decent rate of return. The system was originally designed for people whose life expectency was similar to the age of retirement. Average life expectency is 10 years longer than that and if you actually reach that age, you are likely to live even longer according to the actuarial tables. And there are fewer and fewer workers supporting more and more retirees.
How can that not be a cause for alarm? There is no way the system can go forward without change. When the boomers start retiring in large numbers, we are in it deep.
At least partially privatizing the system lets you invest money that is YOURS TO BEGIN WITH and hopefully have a decent fund. These funds would be likely untouchable outside of retirement and anyone who does participate in them would likely see a reduced retirement benefit.
To me the whole problem here is that we have taken what used to be a Church, family and community issue and turned it over to the governement. I have serious problems relying on the government to force charity. You can’t morally force someone to do the right thing and that’s what a lot of people are pushing when they push government only solutions to poverty and health issues.
I don’t know what the best way to go forward is, but it doesn’t seem properly Catholic to force someone to do what they ought either. God doesn’t force us to do what is right and neither should we force each other. We have lost the idea of Christian charity and love as a governing principle in our daily lives as a nation and a culture.
Government is not always the answer. Nor is punishing someone for doing something that is not immoral like creating wealth or not doing what you think should be done with it. Getting government to do that is also a Very Bad Thing.
Destroying wealth is a recipe for chaos. Some people think they would like chaos, but they wouldn’t. Making the wealthy poor will only succeed in making the poor utterly destitute.
Tim,
I must correct you. Taxing of capital doesn’t destroy it. Dropping a bomb destroys it. Taxing capital does remove capital from those not utilizing it though. A simple example: I have a machine that produces t-shirts. If I tax the machine, it will be reflected in the shirt price. If I tax the laborer, it will be relected in the price. Same with the sales tax.
Taxing capital does remove wealth, but so do income taxes. The problem as you correctly inferred is that the elderly are not productive and hence lose wealth if their assets (capital) are taxed. I don’t see this as a problem, because I don’t believe anyone is entitled to the services of our government for free when they have second homes, etc.
Incidently, because we have moved a significant portion of our taxes to human productivity, human capital has been made incredibly expensive. This has resulted in significant outsourcing of human capital to foreign countries.
Michael,
Taxing property doesn’t literally destroy hard assets like machinery. But that certainly wasn’t what I was talking about and I thought that was pretty clear. I was talking mainly about liquid capital that drives new ventures which drives economic expansion which drives increased productivity and jobs and economic growth.
But let’s conider the taxation of hard assets. When the asset like a widget factory is taxed to the point that it is no longer viable to remain in business in a particular location, what happens? The business closes and moves to where it is more viable. Usually another state or country. That’s why states, cities, counties and countries give tax breaks to companies to come and form new ventures. In the long run it is better to have several hundred or more good paying jobs and the economic activity produced by them than the taxes otherwise collected. Or worse, not collected because the company didn’t come there. So, not just the price of labor determines outsourcing, though it is a big part of it.
When inheritances of family businesses and farms, and unrealized gains made in stocks are taxed something different happens than in your scenario. Farms are broken up and sold to corporate farms which may or may not be good. Family businesses are sold. All to pay a tax because some relative had the misforture to build something worthwhile and valuable. Those assets are often no longer providing what they once did.
When assets are consumed by larger entities, they often do not provide nearly the economic stimulus they once did. They get closed. People get fired. They are divided and sold off. Sometimes these things are good (economically) and sometimes not. Certainly as Catholics we should temper our judgement of what is a good economic act by not only its economic productivity but also by its social impact. Is the trade worth it?
Taxing unrealized gains is just the height of class warfare of times gone by to me. It’s all paper money. There is no real gain. Unrealized. Not real. Taxing something that may or may not happen is ludicrous. How often do you do it? Do you tax based on the original purchase price? Or do you start from 0 each year and tax this year’s gain? What about shares you buy and sell and rebuy throughout the year? What about something you could rent but don’t. You COULD be producing an income/gain but aren’t. Is THAT an unrealized gain?
The problem I have with this is that you seem to think that anyone who isn’t totally destitute on social security is filthy rich and doesn’t deserve to at least get back what they paid in. What they were promised at that. You may be paying the bill now, but current retirees paid the bill for 30-50 years prior to that. They were told the money went into their “account”. Now anyone with a brain should know that was a lie by now. There is no trust fund. Never was. It’s all IOUs from the government to itself.
At what point do we decide who shouldn’t get what was paid in and/or promised to them? Where does Catholic moral teaching come into play here? Is it moral to say one thing and do another? Is it moral to judge someone else’s actions according to your subjective stanards or mine?
While the reality and practice is that the program is just welfare for old people, the program is not sold that way. They DO keep track of who pays what and estimate benefits based on that. We get those every once in a while, even though it will be several decades before we are eligible for the benefits. It’s a legal Ponzi scheme. If I ran a program like this, I’d be put into jail. So, it does need to be fixed. Means testing beyond a certain level of received benefits (returned investment with interest) is fine with me. But taxing unrealized income has absolutely no bearing on whether or not the program gets fixed or not. It only looks like a jealous grab at what others have built because the naked power of government force can do it. To me that is more immoral than a person with two homes getting a social security check. Especially if they have paid into the system all their lives, expecting a refund. I just don’t like the concept of punishing someone for doing the responsible thing and becoming self-sufficient.
Michael-
I believe taxes exist solely for the purpose of raising funds to pay for the necessary operations of government, which includes some provision for the poor. You seem to look at taxes as a means of social engineering, which I am by-and-large against.