Adhering to their annual pattern, “Trustees for the government’s two biggest benefit programs warned that Social Security and Medicare are facing ‘enormous challenges’ with the threat to Medicare’s solvency far more severe,” as reported by the Associated Press March 25th. “Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity,” said Treasury Secretary Henry Paulson. We’ve added the italics because Americans, adhering to their annual pattern, are simply not paying attention. After all, the baseball season is underway!
Is this thing on? Does anyone understand what “consume nearly all projected federal revenue” means? No money for defense, no money for education, no money for the myriad welfare programs so critical to our national conscience, no money for federal research programs — NO MONEY! Without, of course, massive tax hikes or major reductions in benefits, the very thing President Bush said in September of last year. No one was listening then either.
As a nation, we are behaving like spoiled brats born to wealthy parents, believing the gravy train will never derail. I’ve heard intelligent people say, “Don’t worry, the money will be there. The government will not allow these programs to collapse.” As the Great Depression recedes into history its terrible lessons are being lost. Believe it or don’t, governments are more adept at screwing things up than making them right. If we keep to our current spendthrift ways, America will test the limits of financial prudence. The results could be catastrophic.
Reasoning that money grows on trees, or rich people, many Americans believe “taxing the rich” will heal our financial ills. In September of 2007, Barack Obama floated his version of a solution to the Social Security insufficiency. “If we kept the payroll tax exactly the same but applied it to all earnings and not just the first $97,000…we could eliminate the entire Social Security shortfall.” His plan, outlined in the Quad City Times, “would raise more than $1 trillion over ten years.” Problem solved, right? Well, not quite.
Liberals always fail to understand the unintended consequences of their tax propositions. At least three negative results of such a massive tax increase come to mind: 1) an increased drag on the economy, 2) inevitable tax evasion, and 3) an added burden on American business.
Rich folks, not unlike the rest of us, can do three things with their money: spend it, save it, or invest it. All three activities spur economic growth. Taking $200 billion per year out of our economy, above and beyond existing taxes, will retard economic growth. Unfortunately, much of the confiscated funds will be chewed up in the massive Social Security bureaucracy, meaning far less than $200 billion will be returned to Social Security recipients. Worse yet, what money does flow back to Americans will be taxed as ordinary income. Obama’s risky tax scheme will hurt the economy at a time when robust economic growth is critical to America’s solvency.
Second, not to impugn the integrity of Americans making more than $97,000 per year, but wealthy people are not stupid and will seek ways to avoid the extra tax burden. Like the Clintons, many will set up accounts in the Cayman Islands, some will move their companies to business-friendly countries like Ireland, and still others will discover ways to hide income. Tax revenues will fall short of expectations, further straining an already stretched federal budget.
Third, since Social Security tax is split 50/50 between employee and employer, half of that $1 trillion will be paid by American companies, impeding business expansion and degrading America’s ability to compete in world markets.
Adding to the approaching economic tsunami is the very real possibility that Americans may elect a president this November who will, incredibly, ignore the need for fiscal responsibility and propose some form of universal health care coverage. If adopted, such a program would instantly become America’s largest benefit program, dwarfing even Medicare’s bloated spending. Combined with unending calls for increased funding for education, the ever-growing defense budget, and our government’s refusal to cut wasteful, duplicated projects, massive new government obligations will merely hasten our day of economic reckoning.
In his just released analysis, Treasury Secretary Paulson “warned that financial pressures will begin much sooner” than most Americans realize. Social Security “will begin paying out more in benefits each year than [will be] collected in payroll taxes” in 2017. “For Medicare, that threshold is projected to be reached this year.” Both programs have been adding billions of dollars to federal coffers each year. The Medicare bonanza is over now, and by 2017 Social Security will be adding billions to the federal budget red ink annually. “The elimination of the Social Security [and Medicare] surplus is a key reason that experts are projecting sizable budget deficits in future years.” Unless we take decisive action soon, America will sunset her own prosperity.
Assuming Americans have the will, there is a way out of this fiscal dilemma, a path providing affordable health care, education, defense, and public assistance. The American promise of achievable prosperity can be realized by coming generations. At the heart of the solution are the core values of individualism, self-reliance, and private enterprise. On Monday, April 7th, I’ll outline the Pomeroy Plan For America’s Economic Future.
Stay tuned.
