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February 18, 2005

The big foist

Posted by Phil on February 18, 2005 9:51 AM

Letter to the Editor, Washington Post, 2/29/04:

Does Alan Greenspan have amnesia ["Fed Chief Urges Cut in Social Security," front page, Feb. 26]? More than 20 years ago he co-chaired a commission to ensure the solvency of Social Security. That commission recommended stiff increases in the payroll tax to create a surplus that would help fund the retirement of baby boomers down the road. The higher payroll taxes, which put a heavy burden on lower-to-middle income taxpayers, were signed into law and remain in effect to this day.

But in 2001 Mr. Greenspan endorsed a fiscally irresponsible income tax cut that effectively gives away the Social Security surplus he created primarily to high-income taxpayers. Now he suggests that those tax cuts be made permanent, while we reduce the enormous deficits that they've created only through cuts in spending, especially on Social Security.

Of course, Mr. Greenspan is right that we have tough choices to make on Social Security and Medicare. But he seems oblivious to the inconsistencies in his own position and to the huge inequities that these tax policies have created.


Mr. Greenspan's bias toward income tax cuts at the expense of everything else reflects only his personal preferences, not a judgment based on a careful reading of the economics literature. Perhaps it is time for his pronouncements on economic policy to be taken with a large grain of salt.

Chevy Chase
The writer was chief economist for the U.S. Department of Labor in 1999.

As Kevin Drum put it at the time Greenspan called for the cuts to which Mr. Holzer was responding:

Greenspan was part of the 1983 Social Security commission that raised payroll taxes. (It's one of several Ronald Reagan tax increases that his fans conveniently forget about when they're extolling the virtues of supply side economics.) Here's the Greenspan timeline:

1983: Recommended raising payroll taxes far above the amount required to fund Social Security. Since payroll taxes are capped (at $87,000 currently), this was, by definition, an increase that primarily hit the poor and middle class.

2001: Enthusiastically endorsed a tax cut aimed primarily at people who earn over $200,000.

2003: Ditto.

2004: Told Congress that due to persistent deficits Social Security benefits need to be cut.

So: raise payroll taxes on the middle class to create a surplus, then cut taxes on the rich to wipe out the surplus and create a deficit, and then sorrowfully announce that the resulting deficits mean that the Social Security benefits already paid for by the middle class need to be cut.

THEN George W. Bush declares that Social Security is in crisis and that the trust fund, since it is invested in Treasury bonds, might as well not exist at all, effectively dismissing/defaulting on over 20 years of taxpayer contributions...

AND proposes that trillions MORE be borrowed to cover payments to SS beneficiaries while incoming revenue is diverted to private, or "personal," or "goody-goody-gumdrop" accounts...

WHICH, I learned when I dropped my numbers in this calculator (via Kos), will net me out almost 20 percent less than the benefit I should expect under the current system.

The trust fund we invested in would be defaulted on. Our Social Security benefits would be cut. And Bush's deficit would stomp merrily over our children's economic future.

Drum also links to this old Billmon post excerpting a CNN interview with NYT reporter David Cay Johnston, author of the book Perfectly Legal, "The secret campaign to rig our tax system to benefit the super-rich--and cheat everybody else."

That's about the size of it. Except it looks more like stealing than cheating.

(All this started at TAPPED, BTW.)