ON THE MONEY
Hamill: Social Security鈥檚 wicked reckoning has now arrived
By the pricking of my thumbs, something wicked this way comes. This famous line from Shakespeare鈥檚 Macbeth may apply to tax law now.
Decades ago, we had budget deficits. Congresspeople known as 鈥渄eficit hawks鈥� said they could not tolerate such things.
In the Obama years, we saw deficits from a low of $400 billion to a high of $1.4 trillion. This was said to be unsustainable.
It was unsustainable. But it just got worse. Deficits spiked around $3 trillion in two COVID-19 years but now are routinely $1.8 trillion or higher.
We once had active discussions about deficits in presidential election years. Candidates said they had a Nixon-type secret plan to win the deficit war.
Democrats typically argued for higher taxes, Republicans for lower spending. Once in office, it was clear that neither was serious about their plans.
In the fall midterm run-up, Democrats are proposing more tax cuts, just targeted to lower- and middle-income people.
Republicans have their own ideas about tax cuts. And the administration has proposed the highest increase to defense spending ever.
So, it now seems that both parties favor some type of lower taxes and some type of increased overall spending.
As I mentioned in a previous column, Ross Perot鈥檚 crazy aunt in the basement is screaming and no one cares.
Tax advisers care about these issues because clients are always asking what will happen to future tax rates.
The answer to this question is important because if future rates are expected to be higher, it may be wise to accelerate income into current periods.
My general read is that no one in Congress is willing to push for the poison pills of higher taxes or lower spending.
Yes, we speak of lower spending in the abstract. But no member of Congress will explain which spending cuts they favor to bring the budget beast to heel.
So, what is this wicked thing that Macbeth鈥檚 witches warn is coming? Social security will 鈥渞un out鈥� of money in 2032.
Technically, this is the trust fund, a cushion allowing full benefits to be paid when current fund inflows are less than outflows.
I believe the budget deficit problem has arisen because Americans like nice things, but they don鈥檛 want to pay for them.
So long as we keep getting the nice things and do not have to pay, there seems to be no political will to curb the deficit.
The looming Social Security crisis may change the calculus of taxes and spending. With no action by Congress, Social Security benefits may be cut by 22%.
Many Americans, the ones who disproportionately vote, receive Social Security benefits. How will they feel about a 22% cut in benefits?
There may be rioting in the streets, equivalent to sports fans in New York or Philadelphia after their teams win a championship.
Experience following politicians has shown me that to the politician, there is nothing more important than keeping his or her job.
Why? I don鈥檛 know, because it seems like a horrible job that chases away people of character, virtue and quality.
But it is so. If America鈥檚 seniors, some of whom need benefits to survive, but all of whom want their full benefits, become angry, political job security is a real concern.
We have 535 members of Congress who, like Macbeth, want to be kings (and queens) and will slay anything that might block the path to their ambitions.
And with the looming Social Security benefit cut possibility, something wicked this way comes for these people.
Most members of Congress, upon hearing this news, seem to hope that witchcraft will somehow solve the problem. Hence, there is nothing to do.
But there is a smaller group that wants to get together in some form to address the problem before it jeopardizes their royal ambitions.
Like Macbeth, it will be messy to remove the barriers to our leaders鈥� ambitions of ruling grandeur.
Will they have the stomach for this messiness? They may not have a choice if seniors will otherwise lose 22% of their benefits.
This means for the first time in years we may see a serious movement to raise taxes. This time payroll taxes, but taxes are taxes.
Jim Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.
