Sunday, March 13, 2005

George Will is oh-so wrong with his call to raise the Social Security wage base...

Will claims that "personal accounts... might become politically feasible only by raising the cap". Where's this coming from? The Democrats are united in their total opposition to personal accounts. Has there been a single Democrat who's offered up personal accounts as a trade-off for this tax hike? Even Will acknowledges that the Democrats opposition to personal accounts stems from their "reluctance to enable people to become less dependent on government". Does he think that the Democrats will cave on such an important issue, that they will give up on such their raison d'etre for a tax increase?

Will also suggests that raising the cap to $162,000 (the amount of a Senator's salary, which Will thinks for some reason is relevant) could be accompanied by a de-indexing of the wage base - making it a 'temporary' tax hike. Sure, it's possible that this could happen, just as in 1986 it was possible to think that the lower tax rate we got in return for giving up tax deductions wouldn't be raised in the near future. But it's far more likely that the wage base would be raised and subject to future indexing. Will has been around Washington long enough to know how Democrats... and too many Republicans think - no spending program ever goes away and no tax cut stays around forever (witness the debate over making Bush II's tax cuts permanent).

And, finally, it's a ludicrous suggestion that anyone would want to pay more in taxes so they could put some additional money aside in a retirement account. Raising the wage base to $162,000 would cost each affected worker close to $9,000 per year (the 12.4% employee-employer tax). It would be close to impossible to make up this 'investment cost' from merely being able to stick some more money in a tax-advantaged account (compare the return on $XX invested each year in a taxable account compared to the return on ($XX-$9,000) invested each year in a non-taxable account). There's almost no set of numbers that allows the investor to even recover that $9,000, let alone leave them better off.

What are you thinking George?