Thursday, July 17, 2014

The Road Ahead for Taxes, American Prosperity and Economic Growth .... The Future of Social Security and Other "Earned Entitlements" ... What Will Our Kids and Grandkids Say?

What's ahead?

How will our kids and grandkids fare?

What road are we making for them to begin their travels?

Are we being fair to them?

How Washington Whittles Away Property Rights is subtitled 'When government thinks that it ultimately owns all income, bureaucrats never tire of spending it.'

The editorial covers my sentiments exactly, so let's see what it has to say:

"Property rights and the rule of law are essential foundations for a vibrant economy. . . .

Unfortunately, individual rights to capital, land and the fruits of one's labor are threatened—in many cases redistributed from creditors to debtors, from those out of political power to those in power, and especially from young to old. And a much larger battle is looming. . . . 

The biggest future threat will be to the fruits of one's labor. The unfunded liabilities of Social Security and Medicare are now several times the national debt; the unfunded liabilities of state and local governments for pensions and other benefits are in the trillions of dollars and mounting. The panoply of other government programs nonetheless continues to expand. The result, according to Congressional Budget Office projections, is that federal spending will reach 36% of GDP in a generation. This implies that taxes will have to double from the current, near-historic average, 18% of GDP. All federal taxes will increase—on income, capital gains, dividends, corporate earnings, employer and employee payrolls.
Left unchecked, many middle-income earners eventually will face marginal tax rates of 70% or higher—reducing them to minority partners in their own additional work and sundering the value of the investments in their own education.

Either the next generation will be saddled with steeply higher taxes on their work and savings, or the growth in entitlement spending will be slowed. The political battles over this fundamental question will be waged between generations, income groups, high- and low-tax states, taxpayers and retirees, public employees and recipients of every other government service.

The math is unavoidable. The biggest safety-net programs, including Social Security and Medicare, began under far different economic and demographic conditions. But as economic growth has slowed and the population has aged, the ratio of people receiving government benefits to those paying taxes has been rising rapidly. Spending on these two and other entitlement programs will gobble up bigger and bigger chunks of the federal budget. They are already crowding out defense.

Against this unavoidable math is the widespread belief, as the Social Security Administration notes on its website, that many Americans believe that "their FICA payroll taxes entitle them to a benefit in a legal, contractual sense." Politicians feed this belief but it is false.... The notion that people not yet born "own" much larger Social Security benefits in the future is a legal and practical fairy tale.

Most responsible people agree that reducing the growth of benefits should be gradual and protect current non-wealthy seniors. Benefits for the more affluent is the logical place to begin. It makes no sense to destroy their work and investment incentives with high taxes in their most productive years, only to subsidize them heavily a few years later.

Despite the recent hikes in taxes on income, dividends and capital gains, many on the left are clamoring for more: an 80% top income-tax rate and even a progressive global wealth tax with rates as high as 10%. This is exactly the wrong road to take. . . .

Ultimately, behind this and other attacks on property rights is the notion that the government owns all income, leaving to you only what it doesn't demand. But as President Reagan said in July 1987, "working people need to know their jobs, take-home pay, homes, and pensions are not vulnerable to the threat of a grandiose, inefficient, and overbearing government." In particular, taxation "beyond a certain level becomes servitude. And in America, it is the Government that works for the people and not the other way around.""

Summing Up

President Reagan had it right.

Those in power today have it wrong.

It's the future of our uniquely free and prosperous America that's at stake.

What will our kids and grandkids say about us, aka We the People of today?

Good things, let's hope.

That's my take.

Thanks. Bob.

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