Someone wrote to me the following. You have heard a thousand variations of the same thing:
“Starting in 2012, Social Security won’t take in enough to cover the benefits it is paying. So either we cut other federal programs to pay for Social Security, or we cut Social Security benefits.”
Actually, the shortfall in 2012 has nothing to do with paying back Social Security in particular. Reagan and then Bush used the Social Security surplus to give huge tax cuts to the rich (further concentrating wealth at the top.) The government owes Social Security a lot of money, but — and this is the thing – it also owes all the other bond holders.
Social Security might need to start cashing in some of its bonds in 2012 or so.
Other bond holders need to cash in their bonds at other times. We never ask other bondholders to accept less when they ask for their money for their bonds. That would be called “defaulting.”
So why does this bondholder, Social Security, get special treatment in our thinking? Why do we think that people who get Social Security should get less?
The answer to this and a lot of other problems is to raise taxes on the wealthiest. History shows that our economy does better when there is a VERY high tax rate on the very top incomes. It used to be 93% on money made after you hit a few hundred thousand. And that money was used to build infrastructure, educate kids, and all the things that made this a country that could compete. That is part of what got us out of the depression.
Let me add that a very high tax rate at the top removes the incentive to go for quick-buck schemes, and makes business owners plan for the long term.
Think of it this way — if we had a 90% top tax rate hedge fund managers would only bring home a hundred million or so a year, but the rest of us would have health insurance and good roads and better schools.