Hail to the task forces

Where does the budget go? Social Security consumes 20%. Medicare and Medicaid consume 21%. Other mandatory spending on entitlements consumes 17%. Interest on the debt consumes 6%. Hand any politician, Republican or Democrat, a budget knife and ask him to cut into one of those categories and he’ll drop the knife and run for cover. That is why the Fed selects pedigree laden task forces to make recommendations on spending cuts and taxes.

          These task forces usually focus on proposed tax increases on income earners, but ignore the deterring effect escalating taxes have on the economy. Common sense dictates that if you tax something, you discourage it. The bipartisan Dept Reduction Task Force has issued its proposal for reducing the debt, and it is worth examining some of the interesting recommendations. 

           The Task Force addressed social Security. It would raise the amount of income subject to payroll taxes over 38 years until it’s paid by 90 percent of all wages. I absolutely hate this idea. Social Security taxes, when added to the 27% proposed by the deficit reduction commission, plus state taxes, will result in an effective rate of over 50% for many small businesses and high income earners. A net tax burden of over 50% is simply crazy and unfair for anyone. I don’t care how “rich” the payer is. The Task Force proposes to basically leave the benefit structure of social security intact and expand the program to state workers not currently in the program.

The social security program’s sole source of “security” is the current generation’s ability to produce a sufficiently large tax base in the next generation. Yet the program acts as a disincentive to potential parents by collectivizing the economic benefit of having children while further burdening the ability of young parents to pay for the development of the next generation. This phenomenon has put more “advanced” welfare states such as Greece into population death spirals as I’ve discussed in earlier pieces. 

         The current recession could be viewed as earners going on strike. Companies are keeping lean payrolls and workers are finding alternatives to breaking their backs for more money in part because the economic climate is very hostile to earners and savers. So I applaud the Task Force for recognizing that earners need to be coaxed back into earning. While there is still much to not like about the plan, at least somebody finally realized that punishing earners and savers is not the way back to prosperity.