Tuesday, January 13, 2009

A Booming Tax Bill

An opinion piece in the Wall Street Journal claims that taxes must go up no matter who's in charge. The argument is basically that, unless spending goes down, there simply will not be enough money to fund all of the government's responsibilities, especially Medicare and Social Security for Baby Boomers, and spending is not going to go down.

My question is, why not?

People often say about SocSec, "I paid into it, and I want to get my money back out of it." Newsflash: Your money's long gone.

Instead of raising taxes, we need to tell people to accept that they're not going to get their money back.

When Barack Obama suggested raising the ceiling on SocSec taxes, people said decoupling input and payout would turn it into welfare. Well that's exactly what we need to do.

Social Security was never a good plan. For years we've known that it would crash and burn as soon as a smaller generation (e.g., Generation X) had to support a large one (e.g., the Baby Boomers). In fact, calling it a ponzi scheme is probably fair. As in any ponzi, eventually someone is going get the shaft, and the shaft is upon us.

There is no nonpainful solution to this mess. The best we can hope for is to keep it from destroying both our economy and our way of life.

The first thing to do is impliment means testing for Social Security payments. Bill Gates and Rush Limbaugh do not need Social Security; they're not alone. We need to tell those folks who can get by without Social Security, "Sorry, we screwed up, and you're not going to get your 'investment' back."

Second, we will have to keep SocSec payments low. Not only will this keep costs down, it will help fix one of the unfortunate unintended consequences of the Social Security system: its enabling young people's failure to support their elders. We need, as a society, to remind people they are responsible to financially support those who supported them. This will be painful to many; some will have to cut down on the number of Wii games they buy. Others may have to switch from Starbucks to McDonalds. A few will even have to make real sacrifices ... just like their parents and grandparents made for them.

Perhaps we can make it easier for people to declare their elder relatives as dependents. Maybe we can make it possible to share the tax deduction. We can probably find ways to help, but we will need people to start taking care of their own families.

Third, and related to the last, we need to reconsider the retirement age. When SocSec appeared on the scene, people generally lived about 3 years after retirement. We now have a large segment of our population that is retired for 15 years. Besides the cost of supporting these retirees, we deprive our society of the benefit of having these experienced, wise people in our workforce, and we deprive our senior citizens of purpose -- which frequently leads to declining health and happiness.

Fourth, we cannot fix Medicare without fixing healthcare. And Medicare, Medicaid, and the VA have shown us that centralized control of medical care or medical insurance do not lower costs. We will have to impliment real changes in the way we do things if we want to see our health insurance system improve.

While we're at it, we need to get serious about cutting spending across the board. We need to cut how much we let the First Lady spend on redecorating the White House, and we need to cut how much we give to foreign countries for military spending. We may need to explore alternatives to prison for nonviolent felons and alternative funding for the space program. Nothing should be off the table.

As our neighbors across the Atlantic are finding out, you cannot support a large welfare state for long, and certainly not with low reproductive rates. We have escaped many of their problems by keeping our entitlements somewhat in check, by having more kids, and by having a booming economy, but it's about to catch up with us. We can spare ourselves some painful lessons if we learn from their mistakes and fix our problems before they become crises.

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