Solvency: Do tax increases help the system to meet its financial commitments?
August 03rd 04:28:06 PM
A program is considered solvent when it is financially able to meet its obligations. Social Security was designed to be an investment in our future and a safety net during retirement. In not too many years, the program will not be solvent because the trust fund will not have enough money to pay out its promised rate of return on invested tax dollars. Current reform options of tax increases or benefit cuts do not actually make the system solvent, but rather change the promises of Social Security. These solutions are a matter of semantics—the system is only more solvent under these changes because the system is fundamentally different and provides no rate of return. Very often, people who strive for solvency forget that we as contributors deserve a good rate of return. And if we get only 75% of benefits, it doesn't matter whether the system is considered solvent or insolvent--we'll be getting the same low (or negative) rate of return. It is clear that the system does need to be fundamentally changed, but in order to maintain solvency, the system must keep its original promise to provide a positive rate of return on worker’s tax money. Raising taxes or decreasing benefits are not desirable solutions to reform Social Security because they are not actual solutions, they just change what the program does. Personal retirement accounts allow our tax dollars to be invested in our own future and, in the end, allow us to see a positive rate of return on our tax dollars.
Posted by Liz Morgan
Comments
this sight is totally misguided.
if you pay your taxes in actual cash (presumably to help pay for social security, for example) the govt gives you a receipt and tosses the cash into a shredder.
if you pay by check the govt changes the balance in your checking account downward. the govt doesn't actually 'get' anything.
when the govt makes a soc sec payment it changes the balance in your account upward. nothing 'comes from' the govt.
just like the bowling alley. if you knock down 5 pins and your score goes from 20 to 25, where did that score come from?
if it is determined you foot faulted and the bowling alley takes back your 5 points, is the bowling alley richer?
do you think all bowling alleys should have a reserve of 100,000 points in case a lot of people show up to bowl so they won't run out of score?
the issuer of a non convertible currency, like the $US, yen, pound, etc. is like the bowling alley.
govt payment is in no case constrained by revenue per se- it's all a matter of accounting.
the notion of raising taxes, for example, to 'pay for' social security has no application whatsoever.
taxes serve to reduce agg demand, govt. spending adds to agg demand.
it's all about inflation, not ability to make payment.
yes, if the govt deficit is too large soc sec payments may add to unwanted inflation. but that's an entirely different matter.
see www.mosler.org and start with 'soft currency economics' and then see 'subway tokens and social security' by prof Randall Wray.
Posted by warren mosler on August 14th 10:14:04 PM
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