Posted on 01/24/2005 4:06:21 AM PST by phil_will1
WASHINGTON - Some leading Republicans in Congress are weighing whether to take a chance this year on a massive legislative package that would overhaul Social Security and the income-tax code at the same time - a challenge of historic proportion that could lead to sweeping changes throughout American society.
Republicans have reached no consensus on the question, which would disrupt President Bush's preferred schedule of taking on Social Security first and tax changes later. The issue is expected to be one of the main topics that Republican lawmakers will debate during a retreat this week at the Greenbrier hotel and spa in White Sulfur Springs, W.Va.
"Linking Social Security with tax reform, we need to explore it," said Rep. Paul Ryan, a rising Republican whiz kid from Wisconsin who's pushing a bold plan to privatize Social Security. "There's a way of making them compliment each other perfectly."
Republicans such as Ryan want to seize the moment, recognizing that this is the best year to tackle difficult legislation because Bush's post-election momentum will dissipate as the 2006 elections begin to loom.
"The closer the election, the weaker the knees get around here," Ryan said.
Still, Social Security and the tax code are so enormously complex and ideologically freighted that lumping efforts to overhaul them together could doom both.
The White House is proceeding down two separate tracks, indicating that Bush may unveil a detailed Social Security plan by late February and putting off any discussion on income taxes until he hears from a tax advisory commission at the end of July.
"I don't know that the American public or Congress are capable of moving two large projects like that on different tracks," said Grover Norquist, a conservative anti-tax activist who advises the White House and lawmakers. "I'm not sure we have the energy and the focus."
On the surface, Social Security and income taxes appear to have no direct link. Americans finance the federal government's spending on everything from weapons systems to national parks through a progressive income tax created in 1913. Social Security, enacted in 1935, is financed by a separate 12.4 percent tax on payroll income up to $90,000.
But the two are linked. Many provisions in the tax code are designed to encourage retirement savings through 401(k) plans, annuities and individual retirement accounts. Any attempt to simplify the tax code could eliminate the myriad exemptions that Americans use to build nest eggs, impacting retirement plans that depend in part on Social Security.
Until lately, the idea of weighing changes in tax policy and Social Security at the same time had been floated largely by influential Democrats such as Rep. Charles Rangel of New York and Rep. John Spratt of South Carolina.
"If all of our retirement plans include tax incentives for savings, reductions for health care, and now we're talking about privatization plus some kind of benefits, the voter or constituent will want to know, `Well, at the end of the day, what have I got?'" Rangel said recently.
The merger idea gained currency last week when Rep. Bill Thomas of California, the Republican chairman of the tax-writing House Ways and Means Committee, suggested that Congress should use the president's Social Security initiative as a starting point for a broader discussion of taxes and savings.
Democrats have made it clear that they'll oppose the central element of Bush's Social Security plan - using a portion of payroll-tax money to create private savings accounts invested in stocks and bonds.
White House officials are still trying to come up with a more specific plan and are negotiating with lawmakers such as Ryan, who wants workers to be able to invest all of their payroll tax contributions into interest-bearing accounts.
Ultimately, House Republicans may lead the debate's tax component, not the White House. "The White House is going to take the lead on Social Security," Ryan said. "On tax reform, Ways and Means traditionally takes the lead."
The question facing Congress is how dramatically to act. Social Security is popular with Americans, and some Republican lawmakers have voiced doubt about private investment accounts. Some may prefer less dramatic changes to stabilize the system's long-term finances, such as modest payroll tax increases and benefit trims that Congress adopted in 1983. Many GOP lawmakers remain uncommitted.
"There are so many ways of structuring (Social Security) for the 21st century," said Sen. Jon Kyl of Arizona, a member of the Republican leadership. "The real question is how much will people want to change, and I don't know how much people will want to change. Personal accounts are a feature of it, but they're certainly not the only feature."
As for changing the income tax, the debate at its most revolutionary extremes pits a flat income tax against a national sales tax - both radical changes from the progressive-rate system that's been in place since 1913.
But Norquist predicts a more pragmatic result, akin to the tax-rate cuts and loophole closures adopted under President Reagan in 1986.
"It will look like the `86 bill - lower rates and broader tax base," he said.
This is a Knight Ridder article which appeared in hundreds of papers nationwide yesterday (Sunday).
Tax reform ping
I have a feeling we are going to be let down again. It's now or never, but I'm sure a few "moderates", and even some not-so moderate repubs will be afraid to do this.
They need to realize...THIS IS WHY WE ELECTED THEM!
Reduce entitlement spending...reduce taxes...push for private accounts...abolish a few useless government agencies...stop funding the left wing NPR/PBS garbage. This is what America wants.
The mean the Republacracts.
I find the political dynamics of all this very fascinating. Fred Barnes made the observation on Chris Wallace's show yesterday that even though President Bush is ideologically conservative, in terms of his approach to governance, he isn't at all. I think he meant that he was far from a defender of the status quo, as has traditionally been the case with "conservatives".
If the republicans come to be seen by the American people as the problem solvers and the ones trying to bring our government systems into alignment with the needs of the 21st century, and the democrats come to be seen as the "no" party with no new ideas of their own, I can't see how that could be anything other than positive for republicans. Of course, there is always the risk of overreaching, as the Clintons did on health care back in the early 90s. However, despite the risks, I would still rather be where the republicans seem to be headed than where the democrats seem intent on going.
>I find the political dynamics of all this very fascinating.<
Me,too. Politically speaking, I find the INTRUSIVE nature of Taxes (both income and soc. sec. taxes are calculated on my PRIVATE financial info) is my Primary objection to the current system. I think many liberals and conservatives could Agree to start this discussion with the premise that whatever our final proposal might be, there will NEVER again be a reason for government officials to have access to our financial info.
Interesting. Thanks for the post.
"Politically speaking, I find the INTRUSIVE nature of Taxes (both income and soc. sec. taxes are calculated on my PRIVATE financial info) is my Primary objection to the current system."
Good point, Mary. Americans have, unfortunately, gotten used to the current tax system, which is an affront to so many of our rights and liberties. That is one reason that many of us believe that once we get rid of it, Americans will say "Why in the world did we let our government abuse us like that for so many years?"
W&M Chairman Bill Thomas was on "Meet The Press" with Tim Russert yesterday and here is what he had to say about payroll taxes and tax reform.
MR. RUSSERT: Let me raise another one. Right now you pay the payroll tax. It's capped at $90,000, the first $90,000 of your income. Some have suggested, even Republicans, that that $90,000 cap be increased so that people who make a higher income would pay more payroll tax. Could you look that?
REP. THOMAS: Well, my argument, of course, is why even bother looking at the payroll tax? That was a solution in the 1940s and the 1950s. Right now the United States is paying a number of the social costs of the Europeans and the Asians through their tax structure. We pay some of their costs. They don't pay any of our costs. My point being there may be ways to fund the needs for revenue that would look beyond the payroll tax. Why go back to the same old solution? When it was 2 percent, doubling it wasn't that big a problem. Now that it's 12 percent, we actually are dealing with a job-killer; the higher the payroll tax, the fewer people are hired. Why does that have to be the way that we solve the financing problem? Let's find revenue that doesn't continue to kill jobs but also meets our needs. Those are the kinds of discussions that I think would be very fruitful. None of this would be happening without the president's willingness to put the issue of Social Security on the table.
MR. RUSSERT: Find revenue in other places--where? Income taxes?
REP. THOMAS: Take a look at--again, why deal with income taxes? Payroll tax is tied to the income. And that's one way of financing them. Other countries have used other taxes. For example, they have taxes that are added to our products that go into their country.
MR. RUSSERT: Value-added taxes.
REP. THOMAS: Value-added taxes. They subtract them from their products leaving the country. The United States is the world's largest importer and the world's largest exporter, and our tax system is out of sync with the rest of the world. We pay their social costs. They don't pay ours. That at least needs to be examined.
MR. RUSSERT: Some will suggest a national sales tax.
REP. THOMAS: Well, I'm willing to look at ways in which we solve our societal problems and not go back to the same old solutions which have never been long-term solutions. By that--when you're dealing with something like Social Security, you're looking at a half a century. Upping the payroll tax or changing the age is what we did in '83. We're back to the table because those aren't long-term permanent solutions. Why go back to them immediately? Why not look at other options? That's what I'm trying to urge my colleagues, both in the House and the Senate, to do.
MR. RUSSERT: Do you think it would be difficult to increase the payroll tax beyond the 12.4 percent it is now?
REP. THOMAS: Well, politically it would be difficult, but frankly, from an economic point of view, I think it would be stupid. Why would we make it more difficult to create jobs when jobs are one of the ways we're going to help solve our financing problems over the years? Just as I think it doesn't make sense to dismiss the idea of looking at ways to increase the return on the revenue we already have. And the president's approach, with the individualized accounts, would bring more money to the table. The question of security and all the other factors are areas that we have to look at. But his idea needs to be part of the solution.
Gee, do you think they can start taxing this tax exempt underground economy in this country?
"Gee, do you think they can start taxing this tax exempt underground economy in this country?"
To some extent, yes. Illegal labor is a big part of the underground economy and those people who do not report their incomes now would start paying taxes on their consumption. In fact, to the extent that they are in the country illegally, they would not be receiving the rebates that legal residents would be entitled to and they would therefore pay a higher effective tax rate than legal residents.
Recreational drug and porn peddlers may not charge the sales tax when they sell their products, but they would pay it when they bought their consumption items. IOW, the total revenues raised might not go up from this factor, but these people would start paying taxes, perhaps for the first time in many cases.
what about the garage sales across this country too.
"what about the garage sales across this country too."
Garage sales are for used goods primarily. Used goods are exempt under the FairTax. The idea is tax once and only once when an item is sole to the initial consumer.
It certainly would appear that the linkage between social security reform and tax reform is becoming evident to more Americans, which is very good news for the FairTax. Of course, the flat tax does nothing about the need to reform social security, while the FairTax replaces the payroll tax entirely with a much more broad-based consumption tax.Of course, what you're not telling people is that the FairTax rate changes every year to match exactly the amount of social security tax that would have been generated under the current system. It can't fix the SS revenue problem, it's designed not to.
sole s/b sold
Then why are we paying taxes when we buy used cars??
"Then why are we paying taxes when we buy used cars??"
I'm not sure what you are referring to. The FairTax doesn't tax used cars. Are you referring to current state sales taxes?
The underground economy, covers used items. They buy most stuff they can used. Costs less, and no sales tax.
There is sales tax, and fees associated with used cars.
"The underground economy, covers used items. They buy most stuff they can used. Costs less, and no sales tax.
There is sales tax, and fees associated with used cars."
Under the FairTax, used items would not be taxed. In that sense, I suppose, used goods would not be underground anymore. I don't usually think of used goods as part of the underground economy.
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