Now that President Obama has won reelection, he can rightfully say that his policies also won and the biggest winner was his pledge to tax the wealthy. The President has maintained for three years that income over $250,000 a year should be taxed to raise additional revenues to pay for investments that need to be made for the nation’s future and to help reduce the federal budget deficit.
The President said this in all three debates and in almost every speech he made during his reelection campaign. He won. National exit polls suggest that 60% of the nation supports his position on taxing the wealthy.
This is an issue of fairness that the President fully understands because he is able to view issues in the arc of history. Between 1987 and 2010 the Social Security Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected more in employer and employee contributions than they were required to pay out in cash benefits. During this period, the trust funds cash surplus was spent by the federal government – Democrat and Republican – on other federal government programs from research and development to Medicare doctor fees to nuclear submarine construction and operations.
This was the same period over which personal income for the upper 1% grew over 200% while personal income for the other 99% of families grew less than 10%. In place of cash, the federal government issued special notes to the trust funds promising to return the cash when needed. In 2010, the trust funds started paying out more in benefits than they were collecting in contributions thereby requiring the federal government to raise cash to buy back the special notes so that all benefits could be paid.
The 2012 Social Security and Medicare Boards of Trustees Report project this revenue shortfall to persist for at least the next 75 years. Consequently, all interested parties agree that revenues and expenditures must be brought back into balance.
The imbalance between the social security trust funds revenues and expenditures has a significant impact on the current federal budget deficit because it is a new demand on a budget that is already out of balance. The federal government is borrowing money to fund the current budget deficit and the social security trust fund special notes are another federal obligation that must be met through borrowing.
The balanced solution to the overall federal budget deficit solution requires some action on the social security trust funds imbalance by raising additional revenue (taxes), reducing expenditures (benefit), or a combination of both.
What the President is saying in drawing the line on taxing the wealthy is this; the middle class is not going to be burdened with reduced benefits and higher taxes to solve the federal budget deficit problem. Had the social security surpluses of the last 23 years been put in a “Lock Box” as suggested by Al Gore 12 years ago, the federal budget would not be burdened by the trust funds; they would still be fully funded for perhaps another decade.
It was middle income people who paid most of the revenues into the trust funds that created the trust fund surpluses. The social security wage tax only applied to wages up to $46,800 in 1987 and $106,000 in 2010. The surpluses theses wages created went to help fund all the excess of the last decade including two wars and two tax cuts that primarily benefited the wealthy.
So it would be fundamentally unfair if the same middle income wage earners would have to pay for their social security benefits three times. Once from the surplus they created, once from a reduction in benefits and again through higher taxes all while the wealthy, who benefited the most from our economy, are not asked to pay one more dime. The President understands these dynamics. He is looking out for us all the time, even when we don’t know it.