WILLisms.com: Social Security Reform Thursday: Week Sixty-Nine -- Taxes On Benefits.

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Social Security Reform Thursday: Week Sixty-Nine -- Taxes On Benefits.

Thursdays are good days for reform, because they fall between Wednesdays and Fridays.

That's why WILLisms.com offers a chart or graph, every Thursday or so, pertinent to Social Security reform.

This week's topic:

Taxes On Top Of Taxes.

The American Academy of Actuaries has done some analysis on Social Security reform options (.pdf).

Their conclusions:

We can't permanently fix Social Security by raising taxes and/or cutting benefits alone. Both of those routes are merely temporary patches.

Speaking of temporary patches, let's look at one of the more annoying aspects of the program: taxation on top of Social Security benefits.

So, the government confiscates your money, keeps it for decades, gives you back a terrible return on your money, then taxes you for the privilege.

The American Academy of Actuaries has the data (.pdf):

Because the dollar thresholds are not indexed, 85 percent of most participants’ benefits will ultimately be subject to income tax under current law. The revenue that could be raised through additional benefit taxation is relatively modest.

What is the point of this program, anyway? Poverty prevention in old age? Retirement pension supplementation?

Social Security is beginning to look more and more like a fatally flawed socialist welfare redistribution regime than any sort of widely popular benefit program worth "protecting."

Jay Ambrose opines:

To fix this popular program, you have to take some political risks. For decades now the demagogic message largely from Democrats has been that the program is fine as it is and that any adjustments will imperil those currently receiving benefits. Tiptoe toward the truth and you may get severely punished, as President Bush found out when he campaigned for individual retirement accounts and other changes. Ambushed by misinformation, fear-mongering and ideological idiocy, he was forced to retreat while opponents took deep bows.
But truth is a stubborn thing, and so it was the other day that Ben Bernanke echoed warnings of the Federal Reserve chairman who preceded him. He said, as Alan Greenspan had, that the retirement of the long-living, baby boom generation would cause a flood of entitlement spending if nothing were done to address Social Security, Medicare and Medicaid, and that the consequences would be ugly.

He repeated the story that should be old to our ears by now. People over 65 are 12 percent of the population today, and for each person in this age group, there are five younger adults whose taxes can help pay for benefits. Jump ahead to 2030, and people over 65 will be 19 percent of the population. There will be three younger adults to pay the taxes for their benefits. Hang onto current law, and this could mean a deficit in 2030 four times the percentage of gross domestic product of what it is now, which means less money for capital formation, less growth of real incomes and lower living standards.

In short, it could mean economic misery.

Inaction could mean economic misery, but modernizing Social Security could mean unprecedented economic empowerment.

More from Ambrose:

Social Security is the place to start because it is easier to address than Medicare, and a way to get the ball rolling.

Indeed, some otherwise ideologically-friendly folks (like blogger Professor Bainbridge) opposed Social Security reform mostly because "Medicare is a bigger deal." How utterly daft was that line of thinking?

In 2005/2006, we could have changed Social Security in such a way that it would have been a plus for Republicans at the polls, a plus for our economy, and a guideline for future Medicare reform.

A handful or two of dupes within the GOP joined the lot of stooges in the minority and were able to block popular and necessary personal accounts, recasting the entire issue in oldschool demogogic terms, a net political liability for Republicans.

Missed opportunity. Now the stooges are in charge, and it very well may be years before such a grand opportunity again presents itself. In the meantime, the system remains a pillar of Enron-style Marxist dysfunction, rather than a blueprint for further liberty-based entitlement reform.

The clock is still ticking:

Tune into WILLisms.com each Thursday or so for more important graphical data supporting Social Security reform.

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Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).
-Week Twenty (Global Success With Personal Accounts).
-Week Twenty-One (GROW Accounts: Stopping The Raid).
-Week Twenty-Two (Millions of Lockboxes).
-Week Twenty-Three (Support for Ryan-DeMint).
-Week Twenty-Four (KidSave Accounts).
-Week Twenty-Five (Latinos and Social Security).
-Week Twenty-Six (AmeriSave).
-Week Twenty-Seven (Cost Of Doing Nothing).
-Week Twenty-Eight (Chile).
-Week Twenty-Nine (Entitlement Spending Out Of Control).
-Week Thirty (Reform Better Deal Than Status Quo).
-Week Thirty-One (Social Security As A Labor Cost).
-Week Thirty-Two (Social Security And Dependence On Government).
-Week Thirty-Three (Social Security, Currently A Bad Deal For African-Americans).
-Week Thirty-Four (Longer Life Expectancies Straining Social Security).
-Week Thirty-Five (Howard Dean & Salami).
-Week Thirty-Six (Growing Numbers of Beneficiaries Draining Social Security).
-Week Thirty-Seven (The Crisis Is Now).
-Week Thirty-Eight (Disability Benefits).
-Week Thirty-Nine (Broken Benefit Calculation Formula).
-Week Forty (German Social Security Disaster).
-Week Forty-One (Crumbling Pyramid Scheme).
-Week Forty-Two (Overpromising, Globally).
-Week Forty-Three (Demographic Wave).
-Week Forty-Four (The Jerk Store).
-Week Forty-Five (Defined Benefit Plans).
-Week Forty-Six (Even The Empty Promises Are A Bad Deal).
-Week Forty-Seven (Our Aging Population).
-Week Forty-Eight (The Tax Increases Required To Cover Social Security's Costs).
-Week Forty-Nine (Much Longer To Get Your Money Back From Social Security).
-Week Fifty (A Vote, At Last).
-Week Fifty-One (We Can Do Better).
-Week Fifty-Two (Socialist Security).
-Week Fifty-Three (China Has The Same Problem, Only Worse).
-Week Fifty-Four (Potential Crisis Size).
-Week Fifty-Five (The Crisis Moves Closer).
-Week Fifty-Six (Big Brother Social Security).
-Week Fifty-Seven (Personal Accounts Are Awesome).
-Week Fifty-Eight (Private Accounts and Presidential Proposals).
-Week Fifty-Nine (The False Promises Of Social Security = Unwise Investing/Saving).
-Week Sixty (Declining Rate Of Return).
-Week Sixty-One (Entitlement Spending Threatens America's Defense Capabilities).
-Week Sixty-Two (Dismal Rates Of Return Only Getting Worse).
-Week Sixty-Three (Lost Time, Growing Shortfall).
-Week Sixty-Four (Solutions & Consequences).
-Week Sixty-Five (Totalization Agreements).
-Week Sixty-Six (The 7.65% Solution).
-Week Sixty-Seven (No Reform Means The End Of Many Federal Agencies Or, More Likely, Higher Taxes).
-Week Sixty-Eight (Our Next President Faces Serious Social Security Challenges).

Posted by Will Franklin · 25 January 2007 02:13 PM

Social Security Reform Thursday: Week Sixty-Nine -- Taxes On Benefits.

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