The True Trust Fund Rationale?

The problem with cutting FICA (for politicians, not real folks) is that the deeper the cut the sooner we have to raise taxes back up again -- as FICA goes from surplus to shortfall trying to keep up with the baby boomer bulge. Whenever FICA goes in the red we will not raise the FICA rate.

Whenever the FICA rate (set and forgotten decades ago) no longer covers SS retirement, it will be time for us to raise income taxes to begin cashing the trillions worth of publicly owned bonds (checks to ourselves) in the phony Trust Fund.

In the early 80s (I think) somebody got the bright idea to stick the FICA rate at the same 12.4% point for the next sixty years -- while at first lowering and later raising the income tax burden to first take advantage of the FICA surplus and to later cover the FICA shortfall. Rube Goldberg would have been amazed!

After which 60 year span, FICA will need jump from 12.4% to 18.6% all at once to cover benefits -- when the so-called Trust Fund runs out (at a time when average income should have doubled) -- at which point the income tax burden should return to normal (no longer eased by the surplus or burdened with the shortfall).

The phony Trust Fund seems to me to have one logical rationale only: to permit politicians in the early 1980s to set -- AND FORGET -- the FICA rate for the next 60 years!

Adding 0.1% per year to FICA as incomes grew 1.5% per year would have kept retirement benefits at the same level for 60 years until the baby boom cohort filled out. After 2047, retirement benefits may double in real terms every two generations as the ratio of retired levels off and the incomes of the non-retired continue to double every 40 years.

Denis Drew | 05.19.08 - 9:09 pm | Angry Bear