Higher taxes won't save Social Security
Democratic presidential candidates are calling for a tax increase to fund Social Security for retiring baby-boomers. But commentator Glenn Hubbard argues that proposal doesn't get to the heart of the problem.
Glenn Hubbard (Glenn Hubbard)
More on Retirement - Saving, Commentaries
TEXT OF COMMENTARY
TESS VIGELAND: Social Security has many nicknames. Among them? "Third rail of politics." Political candidates are often reluctant to offer sweeping proposals on how to fix the troubled program. But not this year. Recently Illinois Senator Barack Obama accused frontrunner and New York Senator Hillary Clinton of not being truthful and clear on the issue. He's proposing that wealthy Americans pay more in Social Security tax. Commentator Glenn Hubbard argues that proposal doesn't get to the heart of the problem.
GLENN HUBBARD: This month, Kathleen Casey-Kirschling, a retired Maryland teacher, applied for Social Security benefits. And we should all take notice.
Born January 1, 1946, her application for early retirement benefits makes her the first baby boomer to apply for Social Security -- the first of many.
The Congressional Budget Office tells us that we will likely wind up spending about 10 percentage points of GDP more on Social Security and Medicare in 40 years than we do today. If nothing else changes, we would have to raise all federal taxes by more than 50 percent to pay the bill.
But that can't happen, right? Well, Senator Hillary Clinton recently suggested that taxes will be the complete solution for Social Security. But her proposal to levy the Social Security tax for individuals making over $200,000 -- as opposed to the current cap of $97,500 -- would solve no more than 15 percent of Social Security's funding problem. And federal marginal tax rates on high earners would rise to 53 percent, discouraging work, saving and entrepreneurship.
Of course, we could raise all taxes -- indeed, we'd have to.
But there is a better way for economic growth and fairness. We could slow the rate of benefit growth for middle- and upper-income households, while expanding saving incentives for all households to help prepare for retirement.
After all, we should honor our Social Security promise to Ms. Casey-Kirschling and preserve Social Security and a vibrant economy for our children.
VIGELAND: Glenn Hubbard is the dean of the business school at Columbia University. He used to chair the Council of Economic Advisors under President Bush.
