The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security.
Now the joke’s on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits.
As you can see from this post last week, the 2004 deficit is only brought down to a mere $500,000,000,000 by starting with the non-trustfund deficit of $631,000,000,000 and subtracting from that the $154,000,000,000 surplus created by the payroll tax (money allegedly going into the trust fund/lockbox).
To summarize, here’s Greenspan’s 20+ year plan to roll back Social Security:
Step 1. Get appointed in early 1980s to committee to protect Social Security.
Step 2. Successfully propose substantial increases in regressive payroll taxes in order to save Social Security. Workers will pay higher payroll taxes but their retirement benefits will be assured.
Step 3. Wait 20 years; to pass the time, become Chairman of the Federal Reserve.
Step 4. Actively support large and regressive cuts in income taxes. Never mention payroll taxes.
Step 5. Repeat step 4.
Step 6. Observe that in 2004, steps 4 and 5 lead to a $631b shortfall; Step 2, however, created a $154b surplus.
Step 7. Reverse Steps 4 and 5.
Step 8. Just kidding about step 7. Seriously, the answer is clear: cut Social Security benefits.