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Controversy Over Social Security – Part 3 – Social Security and Employment Again in 1990

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As discussed in the previous part of this series, the contention that Social Security would cost jobs – due to increased tax liabilities and administrative costs on employers – has been in circulation since 1935. However, in that this claim was immediately followed by the largest employment boom in American history – spurred by the national mobilization for World War II – this argument never carried much weight. The idea that Social Security cost the country jobs continued to be used by opponents, but it was not until the recession of 1990 that this charge began to be taken seriously again.The recession of 1990 was sparked by the first Gulf War against Iraq beginning with Iraq’s invasion of Kuwait in August of 1990. This led to a shock in oil prices which in turn sparked the recession. In the U.S. the recession lingered until 1992. In the face of this recession, many people were offering ideas on how to stimulate the economy, including the right-wing conservatives that have always taken any opportunity to attack Social Security. The argument was virtually identical to previous versions, but it coincided with a crisis (the recession) and was actively promoted by the emerging network of think tanks that would spearhead the rise of the Neo-conservative movement a few years later.Writing in March of 1991 – just as the recession was hitting hard – Daniel J. Mitchell of the Heritage Foundation made the case quite clearly: “… since payroll taxes directly increase the cost of labor, lower Social Security taxes would [create] as many as one million new jobs – depending on how much the tax is reduced. In addition to creating these new jobs, businesses would be able to purchase additional new plant and equipment and increase rewards for investors with savings from lower labor costs.”By this time, Social Security had already become institutional, so people knew that Social Security payroll deductions and the related tax imposed on employers was not a fatal stumbling block to employment in the United States. Nevertheless, starting in 1990 and continuing to this day, this argument has entered the mainstream discourse about the Social Security system. This is because of the rise in prominence of an array of hard right think tanks that reached an unprecedented level of influence under the George W. Bush administration. Today, thanks in large part to the Internet, the tracking of this argument from the top down is fairly simple. The elite think tanks, like the Heritage Foundation, make their arguments which are then transmitted through the conservative media and then echoed by the conservative base.Today this argument is prominent in conservative circles and has even been used against fellow conservatives. For example, in 2005 when the Bush administration was pushing for privatizing Social Security, this privatization was also to be accompanied by a 1.89 percent increase in Social Security deductions, on both employers and employees. The Heritage Foundation, using its “Center for Data Analysis” division went into action to condemn this part of the plan, declaring: “It should be no surprise that a tax increase of this magnitude would increase the cost of labor in the economy and thereby have an impact on jobs. The CDA study found that a 1.89 percentage point increase in the payroll tax would reduce potential employment by 277,000 jobs per year, on average, over the next 10 years relative to the baseline.”Social Security and its related expenses are institutional today and these expenses are viewed by employers as a basic element of U.S. labor costs, along with salary and other forms of compensation. Repeated periods of high employment have clearly shown that these expenses are unreasonable barriers to employment. As a consequence, the people making this argument today do not try to deny the reality of continued employment in the United States, instead they argue on a theoretical basis: what could have been had these expenses not existed and what might happen if they are removed.

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Written by hintonfran6

August 11, 2013 at 7:49 pm

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