An Audacious Plan To Rescue The U.S. Economy

David Brooks, the New York Times’ conservative columnist, wrote that President Obama’s convention speech lacked audacity. I agree. So here’s my own audacious plan that if actually implemented would cure most of this country’s economic ills.

Begin by making Social Security a pay-as-you-go system. The amount of money collected by the Payroll Tax would all go (no diversions) to fund the system yearly costs.

Apply the Payroll Tax to all earned income, not just the first $106,800 of earned income. This extra tax bite, however, would not apply to the employers’ share of the tax that would remain topped at this level so as not to overly burden small businesses. The payout to future beneficiaries of the system would also be kept at present levels because the people paying more taxes under this plan do not need additional Social Security income for retirement, they are well-fixed enough to fund their own retirements without extra aid.

That’s my audacious plan to save the economy. Why do I think it would have the desired effect?

First, because is will reduce the country’s annual deficits and greatly improve the future credit worthiness of U.S. bonds. This is because with a pay-as-you-go Social Security system the Social Security Trust Fund — an absurd concoction of Ayn Rand acolyte Alan Greenspan — is filled with nothing by government paper, and its contributions to present Social Security shortfalls comes from deficit increasing borrowing. Thus, not only would yearly deficits be reduced because this government borrowing would not be needed with a pay-as-you-go system, some two trillion dollars worth of government’s total debt (In the Trust) could be written down immediately without hurting a single bond holder (only government bonds are in it). With our national debt now so much smaller by two trillion or so, the government’s credit worthiness would be assured far into the future.

And second, because so much additional revenue would now be flowing into the Social Security system, while its outlays are limited to only the rising costs of insuring an aging population, 95 percent all working people, those making $106,800 a year or less, would see a sharp decline in their own Payroll Tax bill. This extra money would do wonders when it comes to pumping up spending in this country, and spending shortfalls are the primary cause of our weak economy.

Some things to keep in mind about this plan: The argument that this is a tax increase is bogus. It is a tax shift from the 5 percent well-heeled to the 95 percent less well-heeled. In terms of total added taxation it’s a wash. Also, it is not an example of class warfare. The rich aren’t getting stiffed in a way the less rich aren’t. They are simply paying what everyone else with a job is paying. It is therefore a classless change. It’s the present Payroll Tax system that exemplifies class warfare.

This is certainly an audacious plan in one sense — the sense that it isn’t being floated in political circles. But it is also a simple and an obvious solution to several major economic problems facing this country.

So why isn’t it at least being discussed in this campaign?

13 Comments

  1. Of course liberals just want to punish the rich for being successful… oh, and because they envy them of course! (I just thought we should get that crap out of the way from the get go.) ;-)

  2. But you’ve simply succumbed to common deception that the primary problem with the economy is the deficit. That simply is not true, the primary problem is the lack of jobs (short term) and lack of investment in infrastructure to enable the sustained growth of jobs and the economy. You’re trying to fix a flat tire by just making the road smoother.

  3. Curt, I think this should be seen as one of many actions the government can take to fix our numerous problems, not a one thing that fixes everything.

    I like the idea.

  4. Um…I am confused: what additional money is supposed to be garnered by the 95%?

  5. Hi Rcoutme,

    Because earned income above as well below $106,000 is subject to the Payroll Tax under my suggested plan, more of this tax is collected — and All of it goes toward funding Social Security. Those making less than $106,000 (the 95 percent) need pay less in Payroll Taxes in consequence. This gives them more to spend on other things, providing a huge economic stimulus.

  6. Ahah! So, what you are suggesting is that the payroll tax may not go back up quite as high? That might be useful. Of course, in the end, most of this would be moot if we followed the advice of MMT proponents and looked at government expenditures separately from revenue. Thus, government spends what it needs to, regardless of tax revenue. Taxes are levied to take money out of the system to prevent run-away inflation.

    Still, given that Congress and the president don’t actually understand the actual mechanics of modern money, the levying of payroll taxes on the entire income of all workers does have some merit to it.

    Meanwhile, you suggested that the business part of the tax only be continued to the $106k level. Are you, then, suggesting that a self-employed (think doctors for a good example) should pay only (for example) 12% on the first $106k and then 6% on anything after? Note: self-employed get a slight tax break on payroll taxes.

  7. CH, welcome and a good comment. Growth will be of enormous help. All the taxes in the world won’t put Humpty Dumpty back together again.

  8. MS, I am late to this thread because I thought you were joshing. Your plan assumes that the below 106K guys will wind up with lower taxes. I doubt it, Washington is a giant sponge and will soak up everyone’s money.
    BTW: Someone like Romney with a low earned income but a high cap gains and dividends, skates with your plan.
    Also, if I may, those larger employers with unrepatriated funds overseas could be made to pay the higher matching payroll taxes as an incentive to bring more money back into the U.S.

  9. Hi dduck,

    If, as you say, Washington is just a giant sponge and some of the new revenue generated by my plan goes to anything but Social Security, my plan becomes just another soak the rich idea. Which maybe isn’t a bad idea generally, but it makes its acceptance far less likely. And worthy but politically impossible schemes are not worth peddling these days.

    The same goes for your point about Romney and other big time capital gainers being exempted from this plan. Personally, I think it was plain stupid to make cap gains income taxed at lower-then-earned-income rates. But again. That’s a battle for another day. I tried to make my notion plain, simple, and who knows, one day even adoptable.

  10. Maybe you can become the Sandra Fluke of payroll taxes. Are you or were you ever a college student, or passed a higher learning institution? Well, there you go, you too can run for congress.

  11. dd

    Are you running for congress? Which party?

  12. Ohio, I would like to run as an Indie, but I am not a good team player/thinker.
    i

  13. The first objection is that the current cap is $110,100 not $106,800. The second is that Social Security is already a pay-as-you-go system.

    There is no economic research that backs your statement : because so much additional revenue would now be flowing into the Social Security system, while its outlays are limited to only the rising costs of insuring an aging population, 95 percent all working people, those making $106,800 a year or less, would see a sharp decline in their own Payroll Tax bill.

    The idea looks unresearched.

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