On Saturday, thousands of Americans spent a day learning about the nation’s fiscal problems and voted on the following solutions:
- Raise the limit on taxable earnings so it covers 90% of total earnings.
- Reduce spending on health care and non-defense discretionary spending by at least 5%.
- Raise tax rates on corporate income and those earning more than $1 million.
- Raise the age for receiving full Social Security benefits to 69.
- Reduce defense spending by 10% – 15%.
- Create a carbon and securities-transaction tax.
I’m not too interested here in the politics of fiscal policy, or whether it is wise to tighten spending in a weak economy. Rather, I’ve boldfaced two items that really only apply to fixing Social Security, so I can link to AAA’s Social Security game.
The game lets you try to fix Social Security’s current problems, either through benefit cuts or increases in taxes or other funding sources. It takes about two minutes to play.
Now my favorite approach ……..
- Increase the payroll tax by a half-point on workers and employers.
- Increase the earnings cap – the maximum amount subject to Social Security tax – to $127,500.
- Bring new government employees into the plan.
…….. solves 98% of the funding problem. Nudging the payroll tax or the earnings cap a bit higher would solve the problem completely. My point: Social Security has a bit of a problem, but it’s not nearly the bloodbath that some have portrayed. That’s why I prefer a solution that doesn’t cut benefits or raise the retirement age.
The flip side, of course, tells you that solving Social Security’s problems would not really make a serious dent in the nation’s long-term fiscal situation. The solution lies in fixing health care.