8th December, 1998
The Ticking of the Social Security Time Bomb just got louder with the payroll tax hike. Should Bahamians be lulled into an assumption of carefree bliss in their retirement years? Not on your life!
A look at the American Social Security pay-as-you-go system ought to clear the vision of those dreaming of retirement benefits sufficient to maintain even the most minimal standard of existence. We understand the richest country in the world is desperately trying to save their system from going broke.
What happened to Social Security in the U.S?
The United States Social Security system was started in 1935 as the Old Age and Survivors Insurance with a rate of 2% on the first $3,500 of income – 1% paid by the employer and 1% payroll deduction from the employee-s wages.
Up to 1977 benefits were expanded along with tax increases. The payroll tax was increased 13 times and the amount of income subject to the tax, – the earnings base – was notched up 26 times. The rate went to 15.3% and the earnings base to $29,900 by 1981. After 1977 it changed from a tax-and-spend program to a tax-and-cut program.
Modifications took place to keep the system solvent including borrowing money from the Medicare trust fund. In 1993 wealthier seniors were taxed on 85% of their Social Security income.
Nevertheless retiring Americans of the Baby Boom generation face the prospect of a bankrupt system. The younger working generation now called Generation X will be obliged to contribute a higher proportion of their income (because they are fewer in number) to support the retired "boomers" – a circumstance bound to foster antagonism between the generations.
Empty Promises and Immorality
Prime Minister Ingraham is promising a lot of "good stuff" for the future including state managed healthcare, catastrophic health insurance and workmen-s compensation. These promises are based on an assumption that there will be a sufficiently large tax base in the future to fund the envisioned programs the limits of which are undefined.
Furthermore, the promises include an immoral act of deception and theft. The PM states that "the purpose of the social security scheme is to make better use of existing purchasing power by way of transfer and redistribution of cash income". Translated into plain English – "we will forcefully take money from some and give it to others who will put it to better use". The immorality is the sanctioning of theft and the deception that value is added by transferring income.
The Guardian on its Web site on the Internet quotes Mr. Leslie O. Miller of the Light Industries Development Council as being in "full support" of the tax increase. Mr. Miller makes the further point that the foreign workers on the Sun International project will contribute $10 million to the National Insurance fund and will receive no benefits from their contribution. An announcement to the world that if you come to Bahamas to work, prepare to be robbed! Does Mr. Miller represent the typical Bahamian? Let-s hope not!!
As the Institute has indicated in another Letter, the payroll tax did not create a "fund". The money has been spent. The Bahamas must find an alternative solution to the current pay-as-you-go system. One that is neither coercive nor deceptive and not requiring contributions from individuals who will receive no benefits. Whatever and whenever government changes the tax system and/or the tax rate it must consult widely with the public. After all it is their money, and their lives that are directly affected.