Social Security Proposals

Since the beginning of the 2007, Americans have worried about their individual finances, especially when it comes to future financial security. With the recent recession crippling most Americans ideas of retirement, a proposal has been presented with hopes of lessening the burden to senior citizens when it comes to retirement.1 The proposition that NIFI.org advances is increasing the Social Security Income Tax on households, asking for a raise from the current 6.2% to a future 7.2%. NIFI.org contends that this tax will enable funding for Social Security to remain unhindered for the next twenty years, which would give policy makers further time to make additional changes to the program. This paper will present a counter argument to the proposal,
In the most basic of concepts, and increase tax on individual incomes for Social Security will also increase the tax and costs of businesses. In conjunction to the employee’s Social Security tax of 6.2%, employers are expected to match this rate with the business’ tax rate of 6.2%.7 It can be assumed that an increase in the employee’s tax will be also matched by an increase in the employers. This new costs on the business will result in a couple different outcomes, all leaning to a reduction on profits. It is important to remember the economic principle that and firms main objective is to maximize profits.8 With this in mind, an increase in on a tax will shift the natural equilibrium of a firm, and the business will need to react accordingly to become profit maximizing. This micro theory best illustrated in with a short-run cost production graph.9 Profits are maximized when the marginal cost of a firm equals the marginal revenue, and the area between this point and lowest point on the average total cost curve are all the profits gained. This is assuming that the firm is competitive, which will remain the assumption for this paper. If this Social Security Income Tax is implemented for the firm and its employees, both the marginal cost curve and the average total cost curve will shift up, indicating that
With the economic outcomes of the Social Security Income Tax, unemployment would be on the rise as labor markets suffer. Policy makers will take advantage of the rising unemployment rate as a way to secure votes, and implement policy to lower the unemployment numbers. If the policy makers have already looked to increase taxes in order to further the longevity of the Social Security Program, it would be safe to assume that another increase in another tax category would be implemented. This “new tax” would be used to create a safety-net program or increase government spending in order to stimulate the economy and create jobs and income to those who were seeking employment. Once can conclude that more taxes would be implemented, and more programs initiated to decrease the unemployment rate. These taxes would be funded by American citizens, American citizens who were already paying a higher tax for the social security program. One needs to ask themselves if these actions are necessary if the sole purpose of the Social Security Income Tax was to stabilize a program targeted to a specific demographic, not force more taxes on the population as a