Pushing payroll taxes up enough to keep the Social Security system healthy would be an imprudent move that would damage the US economy in the long run, Treasury Secretary John Snow said on Monday. Speaking to employees at a Portland manufacturer at the start of a week-long tour through Western states, Snow said the current payroll tax rate would have to rise 3.5 percentage points to keep Social Security in the black if its higher future obligations were handled by taxes alone.
Snow noted in his prepared remarks that with such an increase, the payroll tax would rise "by nearly 30 percent."
"That kind of tax increase would have significant, negative economic repercussions," Snow said. "Increasing payroll taxes hurts the economy and it hurts job creation, period."
However, a summary from the Social Security trustees annual report, released last week, had forecast a slimmer 15 percent payroll tax increase would be needed to balance the retirement program fund over the next 75 years.
The report also said an immediate 13 percent cut in benefits "or some combination of the two" could forestall a deficit.
Snow is a trustee of the Social Security system.
President George W. Bush has outlined plans to let young workers funnel some of their payroll taxes into accounts invested in stocks and bonds.
In Oregon on Monday, Snow said the personal accounts were not enough on their own to offset the anticipated shortfall in the Social Security system.
"The personal accounts don't in and of themselves affect the solvency of Social Security," Snow said in response to a question from an FLIR Systems worker.
"What they do is make possible a much better outcome for the worker who signs up."
The White House has ruled out cutting the benefits of existing and soon-to-be-retirees or raising payroll taxes as a means to deal with Social Security.
Snow said he did not expect the president to seek a higher cap on payroll taxes as an alternative measure.
"I don't think the president will push on that," Snow told a talk radio program in Portland. "I don't particularly think that's a good idea because I think raising the cap raises the marginal tax rates on employees and employers and could have very harmful effects on employment in the country," he added.
However, Snow said other options remained on the table including a possible increase in the US retirement age or adjustments to the indexing and calculation of benefits.
Cuts to other government programs may also be needed to free up funds, he said. Bush administration officials are on a cross-country campaign to promote the president's Social Security overhaul initiative, but polls show the plan has gained only tepid public backing to date.
Snow told reporters he expected Congress to bring forward legislation on changes to Social Security this year.
"I am encouraged by what we're seeing as we go across the country," he said. The Treasury secretary will make stops in Montana and North Dakota later this week.
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