Last year Congress and the White House agreed to temporarily reduce the Social Security payroll tax by 2% to stimulate the economy. That one-year $105 billion tax holiday came just in time for consumers too, given the way pump prices have behaved this year.
But Washington’s real stroke of genius was to credit the Social Security “Trust Fund” with $105 billion (bn) in lost revenue, helping to keep the retirement program “solvent” until 2036. Talk about having your cake and eating it too: Consumers get to spend $105bn of payroll taxes they would have paid into Social Security while Uncle Sam – responsibly, given the looming Boomer retirement wave – saves the very same $105bn in the form of sacrosanct non-marketable federal securities backed by the full faith and credit of the federal government to pay future retiree benefits. Washington is wise to realize consumers won’t happily spend today unless they’re also confident their beloved Social Security program is well-stocked with assets to spend down tomorrow! Crazy smart.
Oh yes some cynics will snipe that Washington’s innovative approach of spending and saving the same dollar amounts to accounting gimmickry that would make Bernie Madoff blush and illustrates the cruelly fraudulent character of the whole Social Security “Trust Fund.”
But I say Washington is on to something here and there’s room to run yet.
The economy showing some weakness again, and sure enough talk of continuing the payroll tax cut has begun to surface in DC. Bravo! But why not “raise the ambition” as they say in Europe? Can’t we just eliminate the Social Security payroll tax entirely and credit the “Trust Fund” with $17.9 trillion in lost revenue, which is the amount Washington estimates needed to pay benefits over the “infinite horizon,” ie when the earth crashes into the sun?
Talk about a two-fer! We would have the mother of all stimulus plans while pushing back that “day of reckoning” when we must make hard choices on Social Security for, well, an eternity.
And if you’re thinking what I’m thinking then we’re thinking our wobbly Medicare program might also benefit from this approach as well.
Miller Time anyone? You’re welcome America.