Resist Tax Hikes. Many opponents of fundamental entitlement reform claim that raising taxes is a feasible approach to solving the entitlement crisis. This assessment is simply wrong. Projected deficits are large and growing, and raising taxes to pay for this spending would require doubling tax rates even for the lowest income brackets. Raising, or eliminating, the payroll tax cap would not solve Social Security's financial shortfalls. It would impose economically damaging marginal tax rates on middle-income and upper-income earners. Such tax increases would reduce incomes and overall economic growth. And, without a "lockbox," Congress would be free to spend temporary surpluses in other budget areas, as has been the case in the past. Such a policy would deal a devastating blow to the economy.
Reduce Taxes to Enable Personal Choice. Lower payroll taxes would enable more Americans to accrue personal savings in private retirement accounts to complement Social Security's flat benefit and reduce Americans' reliance on government in retirement. Moreover, because savings invested in the productive sectors of the economy accrue larger returns than what most Americans can expect to receive from their Social Security payroll taxes, Americans would be able to accrue larger retirement savings or devote less of their incomes to retirement savings while still maintaining current benefit levels.
Some workers may choose to consume more, earlier in life, and others may choose to consume more, later in life. These choices should be equally respected. It is not the proper role of the federal government to determine and mandate the level of consumption for workers in retirement.
Facts and Figures
FACT: Social Security is running growing deficits that threaten steep, automatic benefit cuts.
* Social Security began running deficits in 2010, and its combined trust funds will be exhausted by 2034.
* The OASI trust fund is projected for exhaustion in 2035, at which point beneficiaries will see about a 23 percent cut in benefits.
* Congress authorized a $150 billion transfer from OASI to the disability insurance program in the 2015 ObamaBoehner budget deal to stave off disability insurance (DI) trust fund depletion.
* The DI trust fund is projected to be exhausted again in 2028 (instead of 2016). If Congress fails to enact significant reforms before then, benefits would be cut by about 7 percent in 2028.
FACT: Social Security's unfunded obligations are massive and growing.
* In net-present-value terms, Social Security has promised more than $14 trillion in unfunded benefits than it will receive in taxes over the next 75 years.
* In reality, Social Security trust fund assets represent unfunded obligations for American workers because Congress spent every single penny in previous payroll tax surpluses and left nothing more than statutory IOUs behind.