The biggest economic challenge of the not-so-distant future will undoubtedly be the rapid aging of the population. The number of seniors will double in just 30 years, making it literally impossible to pretend that the status quo for Social Security is a viable option.
Yet Sens. Kerry and Edwards appear to define their solution to the looming Social Security deficits as doing literally nothing. "Kerry and Edwards ... will not raise Social Security taxes ... and they will not cut benefits for people who rely on Social Security."
Critics quickly called this a "do nothing" plan, but that just showed they couldn't translate political doubletalk. While Kerry may not want to cut benefits for those who "rely on" or "need" Social Security, he has flirted with cutting benefits for everyone else -- namely, prudent seniors who plan to rely primarily on other pensions, IRAs, 401k plans and personal savings, as well as industrious seniors who keep working and paying the Social Security tax.
And when Kerry and Edwards say they "will not raise Social Security taxes," they mean they won't raise them on those with incomes below $88,000. They would, however, raise the cap on the amount of income subject to the 12.4 percent Social Security tax by 36 percent -- from $88,000 to $120,000. For those with incomes in that range, marginal tax rates would jump by 10 percentage points (less than 12.4 percent because the employer's half is tax deductible).
Many taxpayers now in a 28 percent tax bracket would suddenly face a marginal tax of 38 percent on any extra earnings from overtime, raises or promotions. Many in the 25 percent bracket would likewise face a marginal tax of 35 percent.
Although it can be argued that the Social Security tax is partly a pre-payment for an annuity, that would not be true in this case. The victims of this cash grab would be expected to pay up to $4,000 more in Social Security tax, year after year, without getting a dime in increase in benefits. This something-for-nothing tax offer means the disincentive to work would be unusually potent, and so would the incentive to receive income in forms not so easily confiscated by the IRS, such as perks, retirement benefits and leisure.