President Bush through his Treasury Secretary Paulson has indicated that he may accept a tax increase for upper-income Americans as part of bipartisan Social Security reform.
Such action would place Mr. Bush solidly in the big government camp. Since taking office, he and the Republican Congress and Senate have expanded government spending at an unsustainable pace. At least they had previously resisted supporting this growth via tax increases. Even this counterfeit conservatism will be obliterated by a social security tax increase.
For 2007, the first $97,500 of wages will be taxed at 12.4 percent with the burden divided equally between employer and employee. The self-employed pay 15.3 percent on all income up to $97,500. According to some reports, President Bush is willing to eliminate the ceiling on income subject to social security taxes. For some workers, this would be whooping tax increase. For example, a small business owner earning $200,000 would face a tax hike of almost $15,000.
This action would fail on all levels. It would not “save” social security since the tax increase would be used to support greater government spending and would not be placed in Al Gore’s mythical “locked box.” It WOULD restrain economic growth since it would reduce the incentive of business owners to undertake new ventures and to engage in productive behavior. It WOULD encourage business owners to over spend on deductible expenses. For example, lease a BMW instead of a Taurus. Over 50 percent of the extra monthly lease payment would be paid by the government via a tax deduction.
In the end, this is a very, very bad idea.