Tuesday, August 11, 2009

Social Security tax increase is coming

Get ready for the social security caps to be lifted. It will represent one of the larger tax increases in US history, but it's unlikely to fix the looming Social Security's inevitable shortfall. According to the Heritage Foundation it may delay the point at which the Social Security fund runs out of money by six or seven years.

Here is why politicians will push to raise Social Security taxes. According to the latest Congressional Budget Office report (attached below), the fund will be wiped out in 30 years or so, possibly even earlier. The chart below is the latest projection of the fund's capitalization from CBO.

To put it another way, the graph below shows the probability by year of the fund going into the red.

Rather than looking for more permanent solutions, taxation seems to be the way forward to fix these types of problems. At some point the US will look like France in terms of taxation levels (combining local, state, federal, and Social Security), without the great benefits the French enjoy. The Social Security tax increase, together with the healthcare reform taxes, cap & trade, etc. combined with massive state tax increases will negate much of the stimulus that has been provided. Tax hikes will make the "double dip" recession significantly more likely.

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