by John Koraska

February 15, 2005

 

For Social Security updates please visit my new website US Public Policy and our new blog!

 

 

Social Security tax reform - where is the outrage?

 

The magnitude of injustice forced on today's workers is beyond belief. That workers tolerate this oppression is even more mind-boggling. The only explanation is a lack of understanding on how the system operates.

 

President Bush's push to reform Social Security has focused attention on a program plagued with funding problems since its inception. The interrelationship between Social Security, a defined benefit plan, and the federal tax code, a defined confiscation plan, coalesce into a legalistic, accounting quagmire that is not definable.

 

Current workers heavily subsidize many wealthy beneficiaries including survivors and dependents. Corporations get massive tax write-offs via business expense deductions.

 

By virtue of marriage, a (non-contributing) Social Security (surviving) beneficiary may receive a significantly higher benefit than that earned by total lifetime contributions of a single worker or a working couple. Workers also pay income tax on Social Security contributions (an income tax on an income tax) and are subject to a third income tax on the benefit. Corporations may deduct as business expense all taxes (FITA & FICA) paid by the individual.

 

Business expense deduction of employee-paid taxes reduces corporate tax liabilities by billions of dollars every year and deprives the U.S. Treasury of an equivalent amount. These accounting practices unjustifiably reduce corporate taxes, cause federal deficits to surge out of control and distort Social Security assets and liabilities.

 

Additionally, elimination of the personal and business tax deduction of interest expense would have profound impact on federal revenues, on how we save and how we do business. This one simple change could lead to a balanced federal budget within the foreseeable future.

 

Lowering the tax rate on interest income and eliminating multiple taxes (FIT, FICA and Social Security Tax on benefits) on wage income to bring them into parity with taxes on other sources of income (i.e. dividends, capital gains) is another means of generating increased individual savings. By removing the tax incentive to debt, and reducing disincentives to savings, real capital formation will occur. And debt and unfunded liabilities may be reduced to sustainable levels.

 

Social Security Outrage (Art#5)