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Metcalf's Two Cents on Social Security

Metcalf's Two Cents on Social SecurityAlan Greenspan is playing the ‘Social Security shell game’ with the American public, according to the chair of Tufts’ economics department. Medford/Somerville, Mass.

Medford/Somerville, Mass. [03.18.04] Social Security - a hot topic in the Presidential elections in 2000 - is back on the front burner after Alan Greenspan recently recommended to a congressional committee that benefits for baby boomers be cut in order to help shrink the mounting federal budget deficit. The move, says a Tufts economist, is the latest in a 20-year trend to shift the tax burden to America's middle class.

"The Social Security shell game has distracted voters while bringing about a significant shift in the tax burden from the rich to the middle class," Gilbert Metcalf, chair of Tufts' economics department, wrote in an op-ed for The Boston Globe.

According to the Tufts economist, the shift in policy began more than two decades ago.

"To avert a funding crisis in Social Security due to the impending retirement of the baby boom generation, a commission headed by Alan Greenspan in the early 1980s proposed major changes in Social Security, including increases in payroll tax rates," wrote the Tufts expert. "Because payroll taxes are only paid on wage and not capital income and because most payroll taxes only apply to wage income below a limit ($87,000 in 2003), they fall more heavily on working people than on the rich."

Metcalf - who specializes in applied public finance - says that the increase in payroll taxes was just the first move in a trend over the last two decades to shift tax burden to the middle class.

"Fast forward 20 years to the second move in this game. The Bush tax cuts reduced personal income taxes sharply and began a 10-year phase-out of the estate tax," wrote the Tufts expert, who noted that Greenspan supported the move.

While the tax cuts were widely touted as a benefit to the middle class, data from the Tax Policy Center indicates that the cuts will be worth an average of only 2.5 percent of income for all households, but significantly higher for households with high income.

"The cuts total 5.2 percent of income for households with adjusted gross income of $500,000 to $1 million and 6.2 percent of income for those households with adjusted gross income in excess of $1 million," Metcalf wrote in the Globe.

While the public was keeping its eye on Bush's tax cuts, says the Tufts expert, Greenspan was making moves on the Social Security surplus - which had been reducing federal debt for the past 20 years.

"The Social Security surplus has helped drive down federal debt by $1.46 trillion between 1983 and 2003," wrote Metcalf in the Globe. "For fiscal years 2005 through 2009, the Congressional Budget Office projects a surplus in the Social Security Trust Fund of just over $1 trillion and a deficit in the rest of the budget of $2.49 trillion.

According to the Tufts economist, "Not only will that $2.49 trillion deficit in the rest of the budget entirely consume the Social Security surplus anticipated over the next five years, it will wipe out the Social Security surplus built up over the previous 20 years to finance baby boom retirements."

To help alleviate the federal budget deficit, Greenspan is advocating cuts in Social Security and Medicare benefits to the baby boomers - a decision Metcalf calls "breathtaking."

"Rather than condemn the tax cuts that have entirely spent the surplus as a result of the commission he headed to save Social Security, Greenspan instead recommends cuts ... to help rein in the deficit," wrote the Tufts professor.

As Metcalf wrote in the Globe," While you're distracted by the moving shells, the money gets snatched."

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