Tax Cuts To the Rescue

In a speech earlier this week, Alan Greenspan warned of the importance of reducing future Medicare and Social Security benefits, lest we encounter crippling deficits as the baby boom generation retires.

He advised taking action "sooner rather than later" noting that "we owe future retirees as much time as possible to adjust their plans for work, saving and retirement spending."

Judging by a study newly released by the Tax Foundation, an effective way to ease the burden on those in retirement's on deck circle would be to extend the capital gains and corporate dividend tax cuts (which are slated to expire in 2008, the year the boomers begin to retire).

The study illustrates the disproportionate degree to which older Americans rely on capital gains and dividend income (the sharpest increase occurring at the crossover to retirement age).  Indeed, more than half of the population over 65 was found to rely on dividend income.

The study's findings are particularly timely.  Two conflicting Congressional tax proposals have recently emerged - a House plan, supported by the President, which extends the capital gains and dividend tax cuts; and a Senate plan, which does not.

Both plans have their charm, but for a variety of reasons discussed earlier, the House/Bush proposal is superior.  The plan's ability to help offset what are clearly vital, but potentially agonizing, changes to retirement benefits only adds to its appeal.