Social Gains and Capital Security
BROCKWAY, GEORGE P.
The Dismal Science SOCIAL GAINS AND CAPITAL SECURITY BY GEORGE P. BROCKWAY Trying t? upstage New York's Democratic Senator Daniel Patrick Moynihan, who wants to stop using the Social...
...A company issuing stock gets its money from the first sale...
...In addition, because production is achieved solely as a result of work, the Social Security tax is a tax on production...
...Once the boomers' benefits have to be paid, the Treasury will be asked to redeem the bonds for cash...
...Yet taxes will havetoberaised for that purpose then whether they are cut now or not...
...When Bush says, "The last thing we need to do is mess around with Social Securiity," he implies that the Moynihan tax cut would reduce benefits either now or in the future...
...If there is evidence of these shenanigans having a positive effect on the production of goods and services, it is a well-kept secret...
...Revenue neutral" was Ronald Reagan's educated way of saving "Read my lips...
...But that is nonsense...
...You can buy land or a collection of beer cans or rare stamps or a painting by some pseudo-Monet...
...no subsequent sales have any effect on production...
...Consequently, although saving may equal investment, as Keynes argued and as most economists today agree, and although production requires investment, it by no means follows that all investments are productive of goods and services...
...There is no doubt that millions of citizens depend on the benefits and are scared whenever they hear talk of changing them...
...As for the other kinds of investments, it is plain that they are speculations and have nothing whatever to do with production...
...I don't object in principle, because I think all Social Security benefits should be taxable, and I think all municipal bond interest should be taxable...
...You can also put your money where y our mouth is in Las Vegas or Atlantic City or any of several state-run lotteries...
...After all, a very strong case can be made for the proposition that the Reaganomic shift of the tax burden from the rich to the poor is largely to blame for the stagnation of the economy and (if you want to fuss about it) the escalation of the deficit...
...For a brief period, a 35 per cent bracket was added to the capital gains tax, making it somewhat progressive...
...When you come right down to it, only the first two items (fixed capital and working capital) are investments certainly intended to result in production of additional goods and services...
...TheSenator, of course, hadapithy comment: "It is well known that the Federal budget is always in balance three years from now...
...Ironically, the same sort of activity would be encouraged should Senator Moynihan succeed in the second half of his ambition: to use the Social Security surplus tobuyupallthe public debt...
...Well, we shouldn't be surprised...
...I'm sorry to say that Senator Moynihan allows us to make the same inference when he quotes a newspaper's opinion that using the Social Security surplus to balance the budget is "thievery...
...They show people who evidently lived in constant poverty, paid a high percentage of their minuscule incomes in taxes, and retired to receive benefits exceeding the taxes they had paid...
...The present growing surplus is a consequence of comprehensive revisions made in 1983...
...In the present stateof our economy, there are not enough sound productive investments for the money already available...
...In spite of the irrelevance of any hoped-for encouragement of saving, Senator Moynihan's proposal offers a big step toward solving the fundamental problem of the maldistribution of income...
...the President and Congress just hauled off and did it, and it costs me over $2,000 a year...
...Yet the Chamber of Commerce and the National Association of Manufacturers and the Business Roundtable have not rallied around Senator Moynihan...
...Among the many things wrong with the Social Security tax, the two principal ones are, first, that it is regressive...
...The Treasury doesn't have a bank vault full of Federal Reserve notes, either...
...I have previously discussed John Maynard Keynes' theorem that saving equals investment (see "Much Ado about Saving," NL July 13-27, 1987...
...But I do feel it is a mite unreasonable not to tax everyone who has one or the other...
...In some instances, even the proceeds from the first sale may be intended merely to finance thepurchaseof another company, whose takeover may not in any way expand total production...
...And the half paid by employees is a drag on business, too, because it contributes to costs...
...Anyway, there is no reason on earth why Social Security should not be progressive when it collects as well as when it pays out...
...Nevertheless, that is the sort of activity the President is eager to encourage by reducing the capital gains tax...
...Actually, changes are made every year as the cost-of-living allowance is adjusted, and there have been changes several times for other reasons...
...Neither present nor future benefits are at risk—at any rate, no more at risk than they will be no matter what happens...
...This was soon dropped, unfortunately, and opportunities for tax shelters were so expanded that when they were largely eliminated by the current tax law it could be claimed that lowering the top bracket to 28 per cent or 3 3 per cent was revenue neutral...
...Takeovers, buyouts and the like make big headlines—and big changes (usually unpleasant) in the lives of workers and the cities they live in...
...This is supposed to do part of what the Senator is urging, but in 1993 instead of now...
...It taxes workers for working, and it taxes employers for hiring them...
...Not very long ago the Federal income tax had a progressive schedule that exempted the lowest incomes and then ran from 11 per cent to 70 per cent...
...The regressiveness is generally recognized, except by those who have come to believe that all taxes must be regressive...
...Half of the Social Security taxes are paid by businesses, from the smallest to the largest...
...It is not a bank vault stuffed with crisp Federal Reserve notes...
...People talk about Social Security as a sacred trust, and it's pretty close to that...
...When productive investments are scarce, money runs to speculation, as it has been doing in a turbulent stream for the past decade...
...The examples usually given are not encouraging...
...To get the money, it will have to ask the President and Congress to use some of that year's taxes to make good on the bonds...
...The private funds released would, he reasons, be saved...
...People are conned into paying an unfair tax and liking it...
...That is not all, but it gives the idea...
...second, that it is a tax on employment— and both adversely affect the distributionof income...
...Very littleof what is reported as business news has anything to do with producing goods or services...
...This will happen regardless of the size of the surplus, just as the benefits I am now receiving come out of current taxes, regardless of what and when I paid in...
...The top brackets were knocked off under Presidents Richard M. Nixon and Jimmy Carter, with a 50 per cent maxitax substituted...
...I'll grant that it is skulduggery, that it is intellectually dishonest and economically counterproductive and unjust...
...But they were below the poverty level all their lives— nothing to cheer about...
...Still, it is not thievery...
...It is simply some entries in a ledger showing that the Social Security Trust Fund owns some Treasury bonds...
...Besides being regressive, the Social Security tax is a tax on employment...
...It is equally well known that the Administration's sudden action is motivated by fear that Moynihan's proposal of a tax cut for everyone will show up President George Bush's proposed cut in capital gains taxes as the rich man's scam it is...
...Moreover, the paperwork involved is bothersome and expensive (or so they used to complain...
...It would appear that business associations are more interested in the capital gains tax, which is paid by their members as individuals, than in the Social Security tax, which is paid by the businesses they supposedly are acting for...
...Why me...
...Some argue that while the Social Security taxis regressive as it is collected, it is progressive as it is paid out...
...The Dismal Science SOCIAL GAINS AND CAPITAL SECURITY BY GEORGE P. BROCKWAY Trying t? upstage New York's Democratic Senator Daniel Patrick Moynihan, who wants to stop using the Social Security Trust Fund to reduce the budget deficit, the Bush Administration has concocted something it calls the "Social Security Integrity and Debt Reduction Fund...
...What is the Social Security surplus anyhow...
...I didn't agreeto that...
...That's rather remarkable...
...If the Senator's Democratic colleagues were as wise in statesmanship as he (and as astute politically), they would rally to his standard instead of sulking on the sidelines pretending to be "responsible...
...Because I own some municipal bonds, half of my benefits are now subject to incometax...
...No one gets away with anything, except politically...
...If the Democrats were not determined to self-destruct still another time, they might combine the Moynihan and Bush proposals in a single bill, and let the President worry about being "responsible" for a change...
...Since it is a widely propagandized faith that our troubles are caused by our failure to save, the Senator imagines that prosperity would be around the corner...
...Budget Director Darman suggests that the Moynihan tax cut would make it necessary to raise taxes a couple of decades down the road to pay the baby boomers' benefits as they reach the golden years...
...Never, however, now...
...Budget Director Richard G. Darman, for instance, claims the Moynihan tax cut would have to be replaced by some new tax that would fall on the same people and therefore be just as regressive...
...If y ou have saved some money and want to invest it, you can buy a factory (fixed capital), goods to sell (working capital), some common stock (claims on future profits), bonds (which will pay fees for the use of your money...
...This case is, indeed, far stronger than that for the Bush myth that cutting the capital gains tax would stimulate productive investment and increase tax collections (see "George Bush's New Trojan Horse," NL, September 19,1988...
...The lack of attractive investment opportunities is frequently cited as the reason banks became involved in the Campeau fiasco...
...What I overlooked in my discussion (and what Keynes overlooked in his) is that "investment" covers many noble works and a multitude of sins...
...Furthermore, fromthepointofview of the Social Security system, there is no reason to replace the Moynihan tax cut...
Vol. 73 • February 1990 • No. 3
