How Republicans Rationalize Tax Hikes
by Ari Armstrong, December 30, 2004
Imagine the following conversation.
Al: "Hi, Ben. I'm going to break your nose today! Aren't you excited?"
Ben: "What? I don't want you to break my nose. So of course I'm not happy about it."
Al: "But I'm actually doing you a huge favor."
Ben: "How do you figure?"
Al: "You see, I was going to beat the complete hell out of you next week, breaking several bones and knocking you unconscious. Instead I'm only going to break your nose today, so you're actually far better off. If you subtract the minor pain of the broken nose from the pain of the severe beating, that's how much I'm helping you."
If you're Ben, of course you're not persuaded by Al's argument. Yet the Republicans are using a similar rationalization to support increased deficit spending, which is another name for future tax hikes. So how did it happen that Republicans, the self-proclaimed defenders of low taxes, limited government, and federalism, came to endorse more national control over our money?
Robert Novak wrote an excellent column December 30 about the Republican plan to cover "transition costs" of mandatory, regulated accounts. I have criticized such accounts elsewhere; here my purpose is only to discuss the costs associated with President Bush's proposal (whatever the details).
Novak reviews the proposal of Republican Senator Lindsey Graham to "finance the transition costs for private Social Security accounts by raising payroll taxes." Graham's idea hasn't gone over well with most Republicans. Because Republicans don't like tax increases. Read my lips and all that. Instead, Republicans just want more deficit spending. Never mind that deficits can only be repaid by raising taxes in the future.
Novak cites arch-conservative Steve Forbes: "Critics will cry that we will have to float bonds to implement this kind of reform. So what?"
So what? So what that the national government will have to increase its debt? So what that this debt will be strapped to the backs of future generations? The Republican answer to increased deficits is "so what?" Meanwhile, it is the Democrats who are squealing about the prospects of more deficit spending. Have we entered the Twilight Zone?
Novak also quotes Larry Hunter, an economist for FreedomWorks: "There are no transition costs... [S]o-called 'transition costs' are demonstrably smaller than the 'do nothing costs'... The debate in Washington over so-called 'transition costs' completely misses the point... There already is a $12 trillion liability on the books of the U.S., which can only be shrunk by repudiation."
Novak goes with this "estimated $12 trillion liability in the Social Security system." That is, future promised benefits over the decades amount to that much. Novak further believes, "If 4 percentage points of the 12.4 percent Social Security payroll tax could be invested privately, transition costs were estimated at $1 trillion. If a 6.5 percent contribution envisioned by a bill sponsored by Sen. John Sununu and Rep. Paul Ryan were permitted, the estimated cost would rise to $2 trillion." Novak notes the "problem with [Hunter's] argument is that we are talking about red ink far into the future..."
Here's the common Republican position, then. The government was going to tax workers an extra $12 trillion over a span of decades, but now Republicans want to tax workers only an extra one or two trillion dollars via deficit spending. The difference in taxation pain is how much the Republicans are "helping" us.
The rest of the quote by Forbes goes like this: "It [Bush's plan] would turn Social Security from a pay-as-you-go liability into a capital-creating, economy-growing asset." However, eliminating the "pay-as-you-go liability" can be accomplished without "transition costs" and without mandatory accounts.
How? Social Security could be phased out by steadily raising the pay-out age or by incrementally reducing benefits. Once the amount of money paid by the system started to decrease, the Social Security tax could be lowered accordingly. This would leave workers with a lot more money, much of which would be invested at each worker's sole discretion, without any controls or mandates imposed by the national government. In Hunter's words, this is the "repudiation" option, though implemented gradually. (While I favor the eventual elimination of Social Security, the program could also be partially phased out.)
Hunter's central error is treating the future promised benefits of Social Security as absolute, against which any reduction can be considered an improvement. The proper standard, though, is a future in which Social Security payments are small and shrinking. Hunter's account is merely an elaborate rationalization to increase the power of the national government -- and sock taxpayers in the nose.
Perhaps those of us who are capable of spending and investing our own money without the "help" of national politicians will eventually stand up to the bullies, whatever their party affiliation.
For additional analysis, please see Social Security: Collected links.