Re: Solution to Soc Sec problem
From: The Trucker (mikcob_at_verizon.net)
Date: 02/06/05
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Date: Sun, 06 Feb 2005 15:32:55 -0800
Jim Blair wrote:
>
> <jrosenbluth@att.com> wrote in message
> news:1107371435.677862.246110@c13g2000cwb.googlegroups.com...
>>
>> Jim Blair wrote:
> ....
>
>> >
>> > In the "short run". If you assume that all tax money collected
>> (subtracted
>> > from the private sector) is spent (added to the private sector), then
>> no tax
>> > policy makes any change in the money in the private sector. A 100%
>> tax rate
>> > on all income has the same effect as a 0% tax rate since taxes simply
>> > transfer money from some people to others.
>>
>> I assume that government spending does not add to the private sector. A
>> tax increase in which all the revenues collected are spent by
>> government, reduces the money in the private sector.
>
> Hi,
>
> This is the first time I have heard that. But I often hear the reverse
> claim: that government spending puts money into the private sector. Like
> Social Security payments, military buying planes or tanks, federal workers
> salaries, etc. all "pump money into the economy private sector" as if it
> flowed in from some sort of fiscal 4th dimension.
Well, Blair, if you do not tax to get the money then, in fact, it does
"flow from some sort of fiscal 4th dimension". It is obviously CREATED
through the bank loan process, and THEN bonds are sold to soak the
money back up. It really does not matter in what order these things take
place. The deficits money is _created_. (from the 4th dimension)
> Now you say that taxes take money out of the private sector, but when that
> same money is spent by the government it does not go back into the private
> sector?
Taxes _do_ take money out of the private sector. What happens next may
or may not put the money back into the private sector. The government
could just tax and return the money to the 4th dimension.
> I say both of the above views are half right and half wrong. Taxes take
> money out and government spending puts money in. That is, government
> spending re-directs money from "taxpayers" to whoever it is spend on.
Blair gets one right.
>> > But I was considering the "long term effect". I say making more
>> money
>> > available for investment, ($Y) will increase the GDP in the future by
>> more
>> > than collecting (or printing) those same $Y from some other source
>> than
>> > FICA.
>>
>> There won't be an extra $Y available for investment.
>
> Are you claiming that money used buying stocks, bonds and CD's is not
> "available for investment"?
>
> Or that for each dollar now collected in FICA that would be diverted to
> investment would be "made up by the government" from money now being
> invested? Say the government made up that "lost" $Y by selling bonds to
> the
> government of China. Is the $Y paid by China, money that they otherwise
> would have invested?
This is an interesting point. Why do you and others seem to think that
a Chinese purchase of Treasuries/Bonds is not an "investment"? It is
not an "investment" that will return goodies to Americans but instead
an "investment" that China expects to return goodies to China.
> Or say they raised the gasoline tax by $Y. Would that reduce investment
> by
> $Y?
According to supply side Republicans _ANY_ tax will reduce investment.
They take the view that infrastructure is not an investment. It is
unrealistic and dead wrong, but that never seems to have any effect
on their religious tenets. Of course, to most Republicans more bombs
and tanks are "infrastructure".
> Because the drives would buy fewer bonds, stocks and CD's because of
> higher gasoline prices? I say they would more likely drive less, buy more
> efficient cars, car pool, etc.
Gee... I think you got this one right. Call the wire services.
>>....For every dollar
>> that moves into a private account, there is an "evil twin" dollar must
>> come out of the private sector.
>
> ??? See above. Is that an "evil twin" or an "evil dwarf", smaller than
> the private account dollar?
In any case it is the same size dollar.
>>....For example, if in 2006 $200B of FICA
>> revenues are moved in private accounts, then the government must either
>> raise taxes or issue bonds in the amount of $200B to cover the lost
>> revenue.
>
> Yes. It would force the government to deal with the REAL deficit, not the
> one masked by the FICA over collection.
Another truthfull assessment. So cut the FICA tax to what is necessary
to support SS. That would be somewhat smaller if the cap was done away
with. The people could then "invest" as they see fit. Imagine an add
from Microsoft encouraging people to buy, not Windoze, but Microsoft
stock instead. An add from Lexus encouraging the purchase of stock as
opposed to a purchase of a new car.
>>
>> > > And wouldn't that imply that the bonus provided to SS through
>> > > private-sector investments is paid for by lower returns on
>> investments
>> > > from the people who make up the "Y" lost dollars, i.e. a (hidden)
>> tax
>> > > increase on these people?
>> >
>> > But an economy is not a "zero sum" game. Gains to investors resulting
>> from
>> > the Y dollars they invested do not come from the pockets of others.
>>
>> Although the economy is not zero sum, as explained above moving FICA
>> revenue into private accounts is zero sum thanks to the "evil twin"
>> dollars.
>
> Perhaps in the very short run, and depending on how the FICA collection
> gap is closed.
>
> But if there is more investment as a result (as I predict), then no.
There will probably be more investment if some amount of funds are
moved. But there are much better ways that would create more _real_
investment and which do not allow so much "gaming" of the system.
Perhaps the most apparent and obvious way to create more _real_
investment is to disqualify land price escalation as a "capital
gain" and then to raise income taxes on higher incomes while keeping
capital gains taxes low. That has worked every time it has been
tried (even without the land price exclusion), and the exact opposite
seems to result from across the board tax cuts for higher incomes.
If you want to "grow the economy" (the result being more FICA tax
income and less of a "demographics" problem) then a highly progressive
income tax system with breaks for _real_ investment would work quite
well.
>>
>> > > Or how about just raise the FICA cap without the other two, .....
>
> jeb:
>> >
>> > In this "debate" so far I have not seen any estimations of how much
>> money
>> > would be expected from an increase of the FICA wage cap to any given
>> levels.
>>
>> Fair point. I've seen estimates ranging from 60 to 75% of the problem
>> being solved from raising the cap to infinity.
>
> ???? Since the "problem" with the current Social Security system is
> demographics, it would never be "solved" by raising either the cap or the
> rate or both.
This is incorrect. A raise in the cap will have corporate executives
looking fore a way to avoid the tax, hence stock options and the like
will come back into vogue.
> As there are ever more retired people living ever longer
> for each worker paying in, such "tweaking", which has been done many times
> in
> the past, can never "solve" the problem, only move back the date when it
> needs to be "tweaked" again.
It depends on how the "tweaking" is done. If it forces the big hitters
to "invest" instead of take their income as salary, then there will be
more "investment".
>>....It would have to be
>> combined with things like means-testing, higher FICA rate for all
>> (about a 2%-point increase) ....
>
> Right.
More horse manure bean counting and no economics.
>>....or investing some of the surplus in
>> equities (which is not the same as private accounts).
>
> Right. Back to either the government decides for you, or you decide for
> your self.
I rather like my idea of government buying a set percentage of stock
from the outstanding shares of all listed companies. I see absolutely
no way that this can be marginalized. And if all the pundits are
right about their "everyone can invest and all can win" then this is
the right way to do it.
>> ....
>> Any two solutions that provide the same aggregate benefits, must raise
>> taxes by the same amount unless one of those solutions results in
>> greater economic growth than the other.
>
> Yes. And I say more investment means more growth.
(snicker) borrowing more money through bond sales is not actually
"investing". It is more a speculation like buying on margin.
>>.....As detailed above, private
>> accounts do not provide greater economic growth than raising the FICA
>> cap or any other proposed solution.
>
> People investing in stocks and bonds and CD's won't promote economic
> growth more than a higher FICA collection?
Probably not when you actually stop and think about it. For each dollar
going into a private account the government must borrow a dollar from
China.
> Both higher rate and cap are being proposed, and that is what was done
> before.
I proposed an elimination of the cap and a _CUT_ in the rate.
>>
>> For the elderly who have no means of earning income, a guarantee is the
>> main point of Social Security.
>
> Means testing? Sounds good to me. But AARP would scream.
I do not see the words "means testing" in that to which you are
responding.
>>
>> > Bottom line as I see it: Either we invest more in the global economy
>> so
>> > older Americans can live from the interest and dividends generated,
>> or else
>> > we open up the US to a massive influx of young foreign workers to
>> provide a
>> > large enough base for FICA to support the growing number of retired
>> > Americans.
>>
>> Don't be fooled. The interest, dividends and capital gains from
>> private accounts come from other people, not economic growth.
>> Josh Rosenbluth
>>
>
> ??? Greater economic growth results in more dividends and higher tax
> collections, but all of that "extra" money comes from "people".
>
> But FICA come only from wages, and collecting more FICA dollars means
> either
> more dollars from each worker or having more workers. And if the "more
> workers" are not being born here....
>
Never was anything wrong with the idea of getting SS revenue from
corporate taxes. But let me ask an honest question: Does the US
government currently tax the corporations in China, Japan, and
Bimini? If not then I can see a very good reason to get that
revenue from dividends. Is there some international law against
China trading in its bonds and buying American corporations with
the proceeds?
-- "I know no safe depository of the ultimate powers of society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education." - Thomas Jefferson. http://GreaterVoice.org
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