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78 IRET Congressional Advisory 1 (1999)

handle is hein.taxfoundation/iretcgadv0075 and id is 1 raw text is: March 15, 1999 No. 78 TO SAVE SOCIAL SECURITY, CUT TAXES, NOT DEBT President Clinton wants to use the budget surplus to save Social Security. Stripped of rhetoric, Mr. Clinton's plan is to avoid tax cuts now to have money to bail out Social Security later, without having to raise tax rates again. President Clii Rather than cut taxes, he the budget sur would use the near term Security. Strij budget surpluses to pay down Clinton's Plan the national debt. He pledges now to have a large amount of future Social Secur revenue, from taxes or haing to rtis borrowing, to aid Social Security when it starts running deficits (in token of which he would create Treasury bonds out of thin air and give them to the Social Security trust fund as IOUs). The Clinton plan fails to trim Social Security benefits to match projected payroll taxes, The real prob leading to eventual insolvency. a relatiey si The real problem with an force to prodi aging population isn't and services financing Social Security. The relatvey large real problem is how to enable a relatively smaller future work force to produce sufficient goods and services for itself and a relatively larger retired population. Cutting taxes to promote higher real saving and investment would raise output per worker. The iton 1 pluhs ped o is to morn ity e tax 'em is nalle ice si fior r- r-et elderly could then consume the added output created by the added capital instead of taking a bigger share of existing levels of output away from future workers through higher taxes. The Administration claims that running surpluses to retire the national debt would make it easier to pay for Social Security in the future. What does that mean? Lower debt would free up future revenue that would otherwise be used to pay interest. But the Administration also contends -- and some Republicans seem to agree -- that, with less debt outstanding, it would be easier in the future to reissue the repaid debt (and more) to pay Social Security benefits. The Administration further claims -- and some Republicans agree -- that surpluses and debt reduction would add to national saving, reduce interest rates, and raise investment, productivity and output. (If so, wouldn't future borrowing to ~vants to use redeem Treasury bonds in the to sae Social trust fund have the opposite .f rhetoric, Mr effect?) avoid tax cuts ?y to bail out The Administration's ater, without analysis is flawed. National r-ates income accountants at the Commerce Department define federal budget surpluses as part of national saving (along with private saving by individuals and businesses), but it is wrong to assume that budget surpluses add to national saving. Budget surpluses displace private how to enable saving; they don't add to . future work national saving, they reduce it. .fficient goods Surpluses are taxes in itself and a excess o f outlays. -edpopulation. Unnecessarily high taxes reduce private disposable income; people must cut consumption or saving. Which gets the ax? Administration analysts assume that higher taxes cause people to cut consumption, not saving. By contrast, they assume that bondholders save every Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www.iret.org

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