Tax Is Not The Answer To Social Security Reform, Warns US Economic Advisor

by Mike Godrey, Tax-News.com, Washington

11 January 2005

The United States will become similar to a high-tax European economy if taxes are increased to cover the rising cost of the nation’s social security bill, the chief economic advisor to the White House, Gregory Mankiw, has warned.

Addressing a conference sponsored by the American Economic Association, Mankiw spoke of social security reform as the single greatest fiscal challenge facing the country, which is at the top of the Bush administration’s priority list for its second term.

However, Mankiw argued that hiking taxes is not the way to address the rising costs of the nation’s retirement system, and such an action would make the US economy less dynamic and “more like those of Europe” where he said individuals work less because they are taxed more.

Mankiw noted that payroll tax would have to rise from the current 12.4% to 15.9% in order to fix the social security system, a course of action he cautioned would “have adverse effects on the overall economy.”

"Raising taxes to solve the Social Security shortfall would, in essence, make the US economy more like Europe,” Mankiw argued.

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