Greenspan's Fraud is the title of a book by Dr. Ravi Batra. In light of what's currently happening in Washington regarding the extension of the payroll tax cut, it is prescient. Greenspan engineered an increase in the payroll or FICA or Social Security tax in the 1980s at the behest of then President Ronald Reagan which effectively raised taxes on the poor while Reagan cut the income tax and effectively lowered taxes on the wealthy. The ostensible reason for this increase in payroll tax was a crisis in funding Social Security 35 years out (sound familiar). Republicans worked themselves and the American public up into a lather over a non-existent Social Security crisis. The real purpose of this supposed crisis was to shift the tax burden from the rich to the poor just as it is with Republicans today who don't really want to extend the payroll tax cut engineered by President Obama. Instead, they have pledged Grover Norquist not to raise taxes except ... they might make an exception for the payroll tax. In other words their pledge is to not raise taxes on the rich while they have no problem with raising them on the poor. They are showing their true colors ... again: protect the finances of the rich while exploiting those of the poor and middle class. Such was the brilliance of Greenspan's plan in the early eighties that hardly any Americans knew or realized what he was actually up to including the Democrats who went along with it. Personally, I've been self-employed since 1976, and I never realized that Greenspan had doubled my FICA taxes in 1983 so that I ended up paying higher payroll taxes than rich people paid in capital gains tax. Such is the reality of Republican subterfuge.
From Greenspan's Fraud, the book:
Greenspan's economics has extracted trillions of dollars in taxes from the American middle class and sharply enriched the rich, who are essentially people like himself and his friends - multimillionaires, politicians, and businessmen. ... His policies have led to the pooring of America as well as the world, while a tiny minority has raked in millions, even billions, in profit. He may be a legendary figure in the eyes of many, but when you carefully explore what he has wrought, the aura of public reverence around him can evaporate quickly.
This book will show that because of Greenspan's beliefs or support for certain policies, family income and real wages have declined for a broad swath of Americans, while CEOs have earned millions in stock options and capital gains; US manufacturing has been decimated and the country is saddled with more than half a trillion dollars of trade deficit per year; nearly two million lucrative jobs have vanished since 2000, and millions of people have been downsized. |
In December 1981 President Reagan selected Greenspan to chair a blue ribbon commission to "save" social security. When it became obvious that the Federal budget deficit was ballooning due to Reagan's 1981 tax cuts, Greenspan ginned up the Social Security crisis which allowed the payroll tax to be increased, and, since Social Security and the general fund had been part of the unified budget since 1969, the increase in revenues from the increased payroll taxes masked the Federal budget deficits due to Reagan's tax cuts. In simple terms the excess revenues from social security taxes offset the deficit in the general fund due to Reagan's tax cuts. But rather than raise the income tax, which would have increased taxes disproportionally on the wealthy, Greenspan's plan was to raise the payroll tax which is a tax primarily on the poor and middle class. In addition Greenspan also later proposed cutting benefits for social security beneficiaries.
The Reagan-Greenspan theology required that the income [taxes] remain small even if it became necessary to coax money out of the destitute because this is essentially what the commission proposed in 1983. Instead of the general budget that actually faced a massive deficit, the commission insisted that the Social Security Trust Fund faced a giant shortfall, some 30 to 75 years in the future, when baby boomers would retire in large numbers. Never mind that in 1983 itself, the Trust Fund's receipts began to rise because of increasing employment, while the general budget suffered an even larger deficit of $208 billion.
In fact, by the end of the year, the Fund earned a small surplus. But the Greenspan commission relied on "forecasts" that showed a gargantuan deficit looming in the Fund, not five to ten years hence, but more than half a century later. It proposed eliminating the Social Security deficit expected from 1983 all the way to 2056 by overtaxing workers in advance, and generating an adequate surplus in the process. |
So the money taken in in payroll taxes which was not used to actually make payments to social security recipients was transferred to the general fund and used to defray the budget deficits brought about by Reagan's tax cuts on the wealthy. In place of the money so used non-marketable Treasury bonds of an equivalent amount were placed in the Social Security Trust Fund (SSTF). Today they amount to $2.5 trillion. This is the amount owed to the SSTF by the general fund. Every year the surplus payroll tax revenues were spent in the general fund and IOUs of a similar amount were placed in the SSTF. The surplus dwindled over the years until today more money is actually being paid out to Social Security recipients than is being taken in in payroll taxes. That means that those non-marketable Treasury bonds in the SSTF must be cashed in and money taken from the general fund to make up the difference. Hence the general fund must accumulate an even larger deficit or it must raise taxes to make up the difference. This is why Republicans are again insisting that Social Security is in crisis. Pay-go demands that the amount paid out from the general fund to make up the difference between what is received in payroll taxes and what is paid out be paid for. Republicans want to make up the difference, as Greenspan wanted to do years ago, by cutting benefits. What they don't want to do is to raise income taxes on the wealthy to do so. Instead of honoring the special non-marketable Treasury bonds in the SSTF which would require either higher deficits or raising the income tax, Republicans want to cut benefits either by raising the retirement age or cutting the cost of living allowance. More extreme right wing Republicans, such as Paul Ryan, want to privatize social security so that the IOUs in the SSTF never will have to be honored. Both Paul Ryan and Alan Greenspan are devotees of Ayn Rand whose philosophy consisted mainly of unadulterated greed and to hell with the poor and middle class.
But Greenspan reserved his most draconian tax increase for the self-employed.
The Greenspan proposal would prove to be a crippling burden for the poor and the self-employed, because it sought to lift rates over and above those provided by a 1977 law. Today, [2005] a full-time minimum-wage earner, working for 2000 hours annually at a wage of $5.15 per hour, earns about $10,000 annually On that she has to pay a Social Security and Medicare tax of 7.65 per cent, or $765. which leaves her with $9,235. Add to this a state and local sales tax averaging 8% in big cities, and she forks over another $739 to meet her minimum consumption.
This sum of over $1500 in taxes can make a difference between homelessness and living in an apartment, between three meals a day and malnourishment, between a doctor visit and living with illness.This is why the commission's tax propopsals amounted to coaxing money out of the destitute, i.e., the millions who subsist on the minimum wage. A worse outcome awaited for those working for themselves. Today [2005], a self-employed individual earning $30,000 a year, has to pay nearly 15% in Social Security taxes. Once $4500 is deducted in self-employment contributions, an individual is left with little to support a family, especially when his income is subject to the sales and income tax as well. |
The Social Security or FICA tax is regressive; there are no deductions or exemptions. It's a flat tax that everyone, rich or poor, pays at the same rate. And it is only paid on the first $106,000. of income. All income over that amount is tax free as far as FICA taxes are concerned. This is why it's essentially a tax on the poor and middle class while the income tax which has higher tax rates for higher income earners is progressive and hits the rich more than the poor although today the highest tax bracket is 35% for income over about $380,000. That means that millionaires and billionaires pay income tax at the same rate as someone earning $380,000. There are no higher tax brackets for the truly rich.
Greenspan convinced his fellow commissioners and Congress to go along with his scheme and his proposals were enacted as Social Security Amendments in 1983. Greenspan's proposals also guaranteed that the maximum taxable wage base (which today is $106,000) would increase year after year so that Social Security taxes would increase on an annual basis. The reality of the situation is that the payroll tax increases of 1983 have been used primarily to fund the tax cuts of wealthy individuals and corporations. They don't want to give up the financial benefits they gained by having payroll taxes reduce their income taxes for 38 years. So they are in the process of reducing social security benefits by a combination of raising the retirement age, scaling back cost of living adjustments or possibly raising the payroll tax rates. The point is that there is no Social Security crisis if the non-marketable Treasury bonds in the SSTF are honored which is essentially the social contract entered into in 1983 by Greenspan and Reagan. If in fact these Treasuries were marketable instead of unmarketable bonds, they could be redeemed on the open market by the SSTF. In that case they would simply be rolled over by the Treasury Department and effectively become part of the ever increasing deficit and national debt. Alternatively, revenues could be sought from other sources most likely the income tax which has been kept low for decades due to the pilfering of the SSTF by the general fund.
Since Congress controls the rules regarding Social Security, they can change them at any time without any recourse by the American people. This means that they can bypass the implied contract to reimburse the IOUs in the SSTF with impunity effectively finessing the whole situation. A better way to place more money in the SSTF would be to lift the $106,000 cap on income subject to the Social Security tax meaning effectively that the rich would pay Social Security tax on all of their income, the same way the poor do.
Other posts on Social Security are the following:
1. You'll Never Hear a Republican Mention the $2.5 Trillion in the Social Security Trust Fund
2. Is Social Security Broke Or Solvent?
3. A Way to Make Social Security Solvent for the Next 75 Years
4. New Study Identifies Revenues for Doubling of Social Security Payout
5. The Only Social Security Reform Worth Considering: Raising the Ceiling on Income Subject to It
6. Schakowsky's Plan to Save Social Security, Reduce Debt, Grow the Economy
7. Remove the Cap On Social Security and Means Test It
8. Social Security Taxes Fall Unfairly on the Poor Self-Employed
9. Is Social Security a Government Sponsored Ponzi Scheme?