They Say Greenspan Should Stay

Social Security Is Not Regressive

To The Editor:

Your editorial regarding Mr. Greenspan, which suggests it is time for him to get out “while at the top of his game,” has so many inaccuracies and distortions as to suggest that you already missed the chance to follow your own advice. You speak of “the recklessness with which we have gone from a multi-trillion dollar surplus situation to one where deficits keep accumulating.” Given your position as editor of National Underwriter, I think it is pretty reckless to make statements that misrepresent the facts in such a way.

First, we never had a “multi-trillion dollar surplus.” A quick check of the Congressional Budget Office Web site shows that our annual surplus peaked at $236 billion dollars in 2000. Of that total, $151 billion came from the Social Security system, which meant it wasnt true surplus but a down payment on future obligations.

Could you get to a “multi-trillion dollar surplus” by projecting for many years into the future? Possibly, but you didnt say that is what you had done, and a projection of that kind (clearly) wouldnt be worth the paper it was written on. Instead, you implied that we had gone from a multi-trillion dollar annual surplus to a deficit in a few short years because of tax cuts. What you failed to even “touch on lightly” (to use your words) were the spending increases, including those brought on by the war on terror, which contribute to our economic situation. Also left out were the tax revenue reductions that come not from tax cuts but negative changes in our economy.

Second, and more significant given that this is an insurance publication and you are its editor, your taking Mr. Greenspan to task regarding Social Security shows a significant lack of knowledge on your part. Didnt the fact that he was “hailed as a visionary man of courage” for his comments make you pause and think about your perceptions in this area?

You state, “Its no secret that the Social Security tax is quite regressive.” People with your position within the industry should be the ones correcting this misconception rather than propagating it. Websters defines regressive as “decreasing in rate as the base increases.” Last I looked the Social Security tax was flat, which means every dollar of taxed income is taxed at the same rate.

Rather than being regressive, Social Security is quite progressive when the benefits are factored in. A higher income individual could pay twice as much tax as a lower income person, yet receive a monthly income benefit that is only 40% higher. This is hardly regressive. But thats only half the story, as higher income Social Security recipients get to pay taxes on up to one-half of their benefit, while lower income recipients may escape taxation entirely. At a 28% marginal tax rate, Mr. High Income has now paid twice as much tax for a whopping 20% more benefit.

You close by commenting that Social Security benefit reductions are tax increases of a sort and that Mr. Greenspan should explain why this tax increase is acceptable, but others pose significant risks. On this you miss the point. This “tax increase” is necessary precisely because the issue does pose significant risks. If we dont get Social Security taxes and benefits in proper alignment, fully reflecting the intergenerational demographic issues that exist, the fiscal gaps of today will look tiny in comparison to those we will face in the future.

If you are going to write editorials on issues as significant as Social Security, take advantage of the fact that our industry has many people who can help you understand the facts. Dont be taken in by, and then propagate, the myths that others foster for their own political gain.