Once Again, We Cannot Pay For Social Security By Ending the Bush Tax Cuts on High Earners →
You may have seen charts floating around that supposedly show that we could pay for the Social Security shortfall by simply rolling back the Bush tax cuts “for the rich”. Megan McCardle has seen those charts too and she explains why they’re misleading and wrong.
The CBPP gets its figure by taking present values of the Bush upper income tax cuts extended over 75 years, and comparing them to the present value of the Social Security shortfall. For those who haven't taken finance classes, present values are sort of like compound interest, in reverse. Instead of adding up the future gains from interest rates, you discount future cash flows by a discount rate.
… Because it discounts future dollars, often quite heavily, cash flows which happen beyond 10-20 years out virtually disappear.
This entry was tagged. Fiscal Policy Social Security Taxes