Saturday, February 25, 2017

"Saving" Social Security

Of course, we all know that Social Security doesn't have to be "saved".  The US government can always create enough dollars to pay Social Security benefits, forever.  The only question is whether the US economy will produce enough goods and services for those Social Security dollars to buy. 

But, we operate under the illusion that some of our Social Security taxes go, and have been going, since 1983, into a "trust fund", from which future benefits will be paid, if the annual tax is lower than the annual benefits.  And that if the "trust fund" balance falls to zero, benefits would have to be cut, or taxes raised, because there is no other source of money for the benefits.  What nonsense!  What would we do if the Defense Department had a "trust fund", and the balance went to zero?  We'd issue some Treasury Bonds and keep paying the soldiers, that's what.  (The need for bond-selling as a source of money is also an illusion, but I won't get into that today.)

Our new President has promised to “save” Social Security and Medicare, and there is even a TV commercial now showing him saying so and asking viewers to tell their Congressman to do it.

So, given the fantasy world in which we operate, it would help if we could somehow increase the balance in the Social Security "trust fund". And given the policies advocated by the current President, I have thought of a way we can do that – a way that should not be total anathema to the other party.

Jobs is the popular shared concern. Every politician is in favor of more American jobs. Clearly, some American jobs have been lost to multi-national American companies moving them to areas of lower labor cost, or outsourcing them to companies employing foreign workers at lower wages than American workers would have demanded. The well-known formula is that if you want less of something, you tax it. And then add the new tax to the Social Security “trust fund”.

The tax would be at the rate of the FICA (Social Security and Medicare) tax, and paid by companies that have outsourced work formerly done in America to other countries, whether directly or through a third party. The rate is the total (employer + employee) FICA tax rate, and the tax base is the amount that would have been paid to an American worker, not the lower amount that was actually paid to the foreign worker. Adding this tax to the “trust fund” would substitute for some or all of a tax increase or benefit cut that our illusion would otherwise demand of us.

For jobs outsourced in future years, the rate could be doubled. For jobs insourced during the tax year, the company could get a temporary break on the FICA tax, and the government would make the contribution to the “trust fund” on their behalf, just as was done in 2011 and 2012.

This plan could substitute for the proposed “border tax”, a very bad idea which would tend to reduce trade and incomes worldwide, and increase prices at the same time.

So call your Congressman, and tell him to save Social Security, and how to do it.

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