RE: Privatization Works

["Carol T. Adams" <ctadams@qni.com>]

Thank you for this opportunity to participate.  I feel strongly
that the Social Security debate should be expanded to include
careful consideration of the impacts of payroll taxes. Surely, this
nation has ample resources to provide a foundation of security for
our elders without unduly burdening workers.   We need to examine
our priorities and choices.

Social Security and Payroll Taxes

Social Security has dramatically reduced poverty among the elderly.
>From the beginning, the source of Social Security benefits has been
the payrolls of current workers.  In 1937, 2% of the first $3,000
in wages was collected to fund the Federal Insurance Contribution
Act (FICA).  The Federal Commission on Entitlement and Tax Reform
estimated that, by the year 2030, payroll taxes would have to be
near 30% of wages to pay benefits as expected under current formulas.
Imagine how different these discussions might be if the Social
Security "promise" was that payroll taxes would never take more
than 2% of workers wages.

The historical tie between payroll taxes and Social Security benefits
has insulated this form of taxation from critical public assessment.
Now that the aging of the Baby Boomers is forcing us to re-evaluate
Social Security, the issue of payroll taxes must also be raised.
Payroll taxes make American workers more expensive to employ while
reducing the value of their wages.  It is not essential nor is it
in the interest of workers to presume that Social Security or
Medicare must be tied to payroll taxes indefinitely.  No discussion
of minimum wages or welfare reform is complete without recognition
that payroll taxes significantly reduce the value of wages for
workers on the lower rungs of the economic ladder.  Take home pay
could be increased 15.3% with no cost to employers simply by
replacing payroll taxes with additional progressive taxes on personal
income.

The question is not whether we have social responsibilities to each
other, but whether those responsibilities should fall exclusively
on the wages of workers.  Social insurance and progressive taxation
are among the best tools available to help balance the inequities
between the financial rewards of a market economy and the necessary
tasks of a just society.  The real test of generational equity is
whether we allocate resources to meet the most urgent current needs
of all generations - for food, shelter, nurture, education,
opportunity and medical care - rather than whether we meet the
needs of any specific generation at some future time.

If not Payroll Taxes, Then What?

The expenses of Social Security and Medicare would draw from a much
larger tax base and be more equitably distributed if, instead of
relying on regressive payroll taxes, the programs were funded from
general federal revenues through progressive taxes on all income
- including wages, benefits, capital appreciation, and both public
and private pensions - with limited, standardized deductions or
adjustments.  And, since social insurance programs and public
services enjoy broader public support when they are provided without
means tests, the conditions of eligibility for receipt public
pension benefits might be tied to age and health rather than income
(either present or historical).

America should provide a foundation of financial support for its
elderly.  This country also needs to adjust to the realities of
longer life spans and larger elderly populations by seeking a better
balance between direct financial support and public services.  In
addition to pensions, the elderly need programs that offer health
care options, nutrition and caregiving services, transportation
and social opportunities in order to improve their quality of life
and prolong opportunities for independent living.  Life is uncertain
- we are all vulnerable to time and unexpected circumstances that
can leave us dependent and poor no mater how successful and
responsible we are in our youth.