Funding Social Security and Healthcare in a Globalized Economy: A Progressive Sales Tax on Goods and Services
A flat payroll tax, matched by employers, funds Social Security and Medicare. Those taxes add to the cost of labor, and thus to the costs of goods and services produced in the United States. In a globalized world that puts US workers at a relative disadvantage.
The tax for Social Security is regressive, taxing the first $~100K of salary but not above. The Medicare tax is a flat tax on all wages, not as regressive as the Social Security tax, but hardly progressive.
As our workforce: retiree ratio shrinks fewer workers have to support more retirees. Moreover, so long as our revenue base is limited by wages, the ability to enlarge revenues to account for increased needs is compromised.
For all these reasons, the president should use this moment to replace these taxes (with a minor exception) with a progressive sales tax on goods and services. Dedicating these taxes to health care and social security also provides transparency, so that people know exactly where their taxes are going. We have found in Washington State that directly linking a tax to a benefit provides far more support for the tax than when the revenues just "disappear" into general revenues.
Progressivity is achieved by exempting from this tax those categories of goods and services that consume large fractions of lower-wage workers' incomes: food, clothing, rent, physicians' services, medications, children's school supplies (and probably some others). With those excluded, a sales tax on goods and services, whether produced in the United States or not, should be levied at whatever percentage rate is required to meet the expenses of the entitlements (that ought to include Medicaid and whatever is needed for health care reform and universal coverage).
This program has many benefits. First, unlike the current system, it is progressive, wealthier people who consume more will pay more. It is, moreover, a tax cut on the income of everyone, with lower-wage workers benefiting more on a percentage basis than upper income. It is also a tax cut for corporations.
Second, it reaches services (that account for about 60% of US "production") as well as goods, thereby taking the burden off of manufacturing alone and enabling a lower tax rate because of its breadth. Third, it stops adding to costs only of goods and services produced in the US, but rather spreads them among all goods and services sold in the US.
Fourth, by linking this tax to entitlements, it is "transparent", i.e., if the country wants to increase or decrease the benefits, it will know what percent change in the sales' tax is required. That will generate intelligent debate. Fifth, it de-links revenues from the number of workers per retiree, a strain on the current system.
There is one caveat. To eliminate the entire Social Security tax would be to de-link work from retirement benefits. To prevent that, I suggest a 2% corporate contribution (instead of today's 6%) be maintained for each employee. That way, each employee's work and contribution can be measured, and the social security to which that person is entitled can be calculated in exactly the same way as it is today. [Or it could be 1% for the employee matched by 1% from the Company].
Otherwise, this is a far superior way to pay for entitlements than is currently being considered. It would begin to align our tax code with the realities of a globalized economy.
The health care debate provides the perfect crucible for melding these elements together. By wide margins the American people want their health care guaranteed. Defining a means to pay for it, that is broad and therefore perceived as fair, that equally impacts foreign and US goods and services, that has a substantial degree of progressivity, and that is, importantly, transparent to the taxpayer (want to decrease the tax rate? OK, what benefits will be given up; want more benefits? OK, how much will the tax rate need to raised?), improves the prospects for broad support the health care reform effort requires.
The right wing will wail about "new taxes". But, if we do not fight the right wing on this issue, with broad-based public support, and a worker-friendly/employer-friendly/deficit-neutral tax to pay for it, what then will this country ever rise to the occasion to fight for?
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This seems pretty similar to the proposed Fair Tax (to replace all taxes), but that one gives people a rebate up to the poverty level instead of exempting certain expenses. I'm no expert so I'm not really sure which one would work better, but it seems that, historically, having sales tax exemptions seems extremely confusing and complicated.
The "Fair" Tax lunacy is a scheme that was originally cooked up by the Church of Scientology as revenge against the IRS for the way they had been denied tax-exempt status for so long. Google it up if you want the details.
The "Fair" tax will only harm those in poverty, who literally are struggling to pay for rent AND food as it is. They're already cut to the bone now trying to make ends meet. The "Fair" tax will be chopping right into the marrow!
"The right wing will wail about "new taxes". But, if we do not fight the right wing on this issue, with broad-based public support, and a worker-fri
Actually the right wing has proposed this type of taxation in the past to eliminate income tax. I don't see a reason they would fight something like this, if the numbers do in fact jive.
I see only one problem, things like Education are more important than healthcare (we have no doctors tomorrow if we can't teach them today) how do we save the educational system, etc to make productive citizens (thus boost tax collection) to keep the US competitive in the world market as well as prevent us from becoming complete welfare state (which is unsustainable)? Look at CA, they are completely tapped out and the welfare rolls are increasing by the day... what is the real answer for maintaining/saving the government's current commitments to its citizens in order to make something like universal healthcare work?
It seems like we are always getting burned on yesterday's promises (we haven't saved Social Security from collapse yet, which was a promise made long ago, how do we keep free healthcare from going down the same road?
See Paul Abrams's Profile
Yes, there was a "national sales tax" idea bandied about by some republicans, but it was not progressive, and itwas to replace the income tax. THis is to replace a very regressive income tax--FICA and medicare--and leaves the progressive income tax in place.
TARIFFS WORK ! That's why other countries use them, they just give them another name. Falling wages are the real culprit. . Wages have fallen so far that US businesses and people cannot afford basic health care so Government has to step in or be replaced. Increase wages and we can afford a higher standard of living. We don't buy what your selling Mr. Abrams !
Saying that taxing income makes us less competitive because it passing on the tax on to the consumer makes absolutely zero sense. Whether the consumer is taxed directly or the tax is passed on it affects the consumer equally.
See Paul Abrams's Profile
Actually, it makes a whole lot of sense. Costs per auto in the US are $1500 higher because of benefits. I am all in favor of the benefits, but we could take a step toward leveling that difference if we did not link the benefits to employees but rather to the goods (in this example, the autos) themselves.
You are quite right, the consumer will still pay the tax, only on all goods, not just on goods produced in the US.
The current system isn’t actually broken. What’s wrong is that the surpluses have been used to cover the Federal Government’s deficit. In a few years there will be no surplus and the actual deficit will be shown as the monster it is. Worse, the borrowed surpluses will have to be repaid. As to putting a burden on business, other countries have taxes in place to pay for their social spending with no apparent problems. What these other countries don’t have is a military led empire that costs about one trillion dollars per year to maintain. Address this and get back to me.
The Medicare portion is under funded and new revenues must be obtained. For the long term this is also true of Social Security. A much better solution is to broaden the tax base of the existing system to include unearned incomes. The employee portion should be levied against these incomes. An exemption of $10,000 single/$20,000 joint should be given to make this more progressive. No upper limit should be imposed. Further, the existing cap on earned incomes should be discontinued on incomes greater than $250,000 yielding a $100,000 to $250,000 tax free zone for the upper middle class. A continuation of the payroll tax refund for lower income workers should be maintained.
Any sales tax starts off as severely regressive and only severe contortions of the law can make it less so. On the other hand Income tax is easy to make progressive. So why start off with something that doesn't work and try to make it useful when you could start off with something that does work?
See Paul Abrams's Profile
The problem with the income tax is that it is not transparent--it goes into general revenues, and thus it does not provide correlation between a percent increase (or decrease) and specific benefits.
What you're referring to is a "dedicated tax" and the taxation method isn't related to whether or not it's dedicated. Frankly after it leaves my hand I'm not sure how "transparent" any tax is.
As someone who has dealt with various transaction taxes and wealth taxes as both an accountant and a computer programmer I can say without hesitation that income taxes are THE easiest to deal with AND they have the added benefit of giving the taxed a clear year end statement to tell them how much they paid for their government.
Sales taxes are one step above lotteries for being a bad idea on several levels.
When will America finally wake up and not spend 40% of every dollar on DEFENSE. That is more than the rest of the world combined. Why do we have such a HUGE DEFENSE BUDGET. Why should our soldiers even defend a country that does not take care of its people????
That's the elephant in the living room.
Why? Because what little manufacturing that is left in this country is related to DOD and/or Pentagon contracts. And I believe that these jobs would also be outsourced if the government would let them.
It takes money to maintain an empire and have the rich get richer
SS tax needs to be applied to anything over $100,000 also, or is that what you said? I got a little confused.
Exactly, SS tax on incomes over 100,000 and stop writing off the DAMN JETS....Th
Mr. Abrams, do you have any idea how quickly such a fiasco would spell the end of Social Security and Medicare? Right now, these programs are set up and funded in such a way that it would be difficult for the "right wing" and all the other champions of hard-core capitalism to obliterate them (my proof of the difficulty is the simple fact that the programs still exist). Change this paradigm, which has been around and working quite well for several decades, to a tax on goods and services paradigm - and you instantly give the enemies of social insurance the lever they need to jettison the programs entirely. Please, sir, do not give any more ammunition to the vultures and scavengers of society than they already have. At least wait till they finally come up with a working strategy to shred the social safety net before suggesting alternative methods of funding.
See Paul Abrams's Profile
Quite the opposite, actually.
This is how Conservatives end social programs, in an indirect way. They would face the publics wrath if it was more direct.
this tax would add to the governments bottom line at the expense of the consumer. great way to choke off the recovery. take this plan and put it where the sun don't shine. come back when you have a plan to clawback the wealth bush redistributed. TAX WHERE THE MONEY IS!
I swear to Gawd, people like the author should go live abroad in several different countries for at least a decade or two.
Then come back and propose a taxation strategy.
Social Security works ! Conservatives can't stand it. They keep trying different ways to sabotage it. Military spending is bankrupting us not Social Security. DO THE MATH ! READ THE CHARTS !
Exactly, and MEDICARE WORKS....i
Social Security works in that you are supposed to get back what you put in. Likewise with Medicare.
Here is the problem. The outlay for Medicare started exceeding what it was able to collect in 2004. This is why Obama wants to cut Medicare benefits. For Social Security, the payouts to citizens will exceed what it collects in 2017.
If you don't collect more than you spend, you go bankrupt.
Want facts? Here are the unadulterated facts from the Social Security Administration, which oversees both programs: http://www
Here is the math....
http://www
"The financial difficulties facing Social Security and Medicare pose serious challenges. For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge.
Signed by Geithner, Sebelius, Solis and Astrue
They also provide some "difficult solutions" the one currently being publicly addressed is lower healthcare costs.
FLAT TAX SNAKE OIL ! This is the same flat tax that the right wing keeps trying to sell to us. This is the same Conservative thinking that got us in this financial mess in the first place.
See Paul Abrams's Profile
It is already a flat tax--social security (12% and medicare 2%). This is far more progressive, and broad, and doesn't penalize US workers, and has the chance of raising much more money with slight tweaks to the percentage rates.
The "...chance of raising more money" you speak of will be on the backs of the lower & ever shrinking middle classes. Lame idea.
The social security tax is flat for those who make below the income cap. For folks who make more than the cap, it gets "progressively" lower.
Let's get the terminology right. The so called payroll tax is not a tax. It is a premium workers pay for their Old Age, Survivors, Diasabilty Insurance (OASDI). That is the correct term for what we casually refer to as "social security. "
Capitalists love the word "social" because they can morph it into "socialism"
then say the free markets work better.
So, it is not a tax on the employee. The employer half is described by many companies as a benefit.
I have NO problem paying a current premium for future claims. I do it for my auto, home, life, and boat.
THAT is why OASDI is so succesful; it is an insurance program, not a government benefit or welfare handout, as many capitalists try to describe it.
How to fix OASDI? Follow the 1983 Reagan-Greenspan solution. Make sure the premium is applied to 90% of the wage base (currently it applies to 80% of the wage base due to rising incomes since 1980s.) Reset the upper income limit the premium applies to and the so-called social security solvency issue goes away for ANOTHER 50-75 years (roughly.) Heck, my home and auto premiums go up 5-10% every year even though I never file a claim!
Taxes can be manipulated too easily depending on political climate.
Capitalists need to begin using the correct terminology when speaking of this issue. It is not a tax for a benefit. It is a premium for a claim.
Last year Larry Ellison, CEO of Oracle raked in a cool $192,000,0
In addition, he paid no Social Security taxes on any amounts over the first $95,000.00 he earned. Meaning, he received an automatic tax benefit worth $28,785,75
Oh, he'll still get the maximum amount of social security when he retires. This is part of what Bush meant when he said, "Anyone who pays taxes will get a tax cut under my plan." Generous estimates of what people like Larry actually pay in taxes hoovers around 7% of his gross compensation.
Seems fair doesn't it?
Simple Math. Someone earning 6 Million dollars annually makes $500,000.0
I would disagree to an extent. Someone who creates a company that provides a useful product or service and grows it can get rich as far as I am concerned. The problem we are facing is that our companies have managers who are getting rich at the expense of stockholders, workers, and the overall economy. Since at lest the 1970s U.S. business has focused more and more in finagling and the short term to boost stock values and pad executive pay and bonuses. Executive pay for a CEO used to be about 20 times the pay of an average worker. It is now sometimes hundreds of times that and our corporations are no longer leaders.
We need to jigger the system so the focus is long term (and, frankly, somewhat patriotic).
Going back to the high marginal income tax rates of the Eisenhower period would be a big help. Take away the incentive for greed. Far as I am concerned, the fact that GREED became the thing to do is hogwash. It's un-Christian, unpatriotic, and immoral. Besides, it's not a good way to run a company. Sell out? Not as good as making good products and beating the competition. The whole U.S. economy needs moral and physical reform. There are greedy Japanese. But not the guys running Honda or Toyota - or their banks, for that matter. They are out to win for the team.
Part One
I'm exactly proposing much of what you suggest. 95% of income taxed over a self insuring amount. (I'm guessing at a figure that is roughly twice the cost it was in the Eisenhower era. Approximately 3 million annually, therefore, 6 million now) I have absolutely no problem with citizens who create wealth and spend it anyway they please WHILE THEY'RE ALIVE. They won the American Lotto called capitalism. Congratulation! Enjoy it!
However, once they're dead, the capital they enjoyed while they were alive not remaining in the business they created needs to be returned to the monetary system so that new generations have access to capital to solve new problems and create new businesses. Not horded by their offspring for generations who in general create nothing, and contribute nothing. (Paris Hilton comes to mind)
I can think of many examples in my own small community of "non-famous" people living off millions of dollars in trust funds left to them by their ancestors and contributing zero for their own existence in either spending, jobs, or creating new businesses. Sometimes as many as 5 generations deep. That's hundreds of years that capital is removed from the system to support a relative handful of people doing nothing.
Oh, I suppose the argument could be made that these people support a handful of yacht and exotic car manufacturing jobs and such. But IMO that's not enough of a contribution to warrant the freedom purchased by inheritance at current tax rates . .
Part Two
Until issues like inherited wealth are addressed through taxation, the problems with creating a straight starting line for the rest of us will continue until the US and so called democracy returns to the feudal system from whence it came . . .
Whatever works. I will say that I think they are going to up the retirement and early retirement age for social security and that is going to screw a lot of people.
you know we really do need to take to the streets june 25 for healthcare
actually sticking around in such a terible system would be more hypocritical than say becoming an immigrant. We are a nation of immigrants, but it doesn't mean we can't move somewhere else...
We can also choose a different job or start our own business. Create your own destiny and stop blaming the government for everything, ultimately government does suck, so why should we put them in charge of more stuff?
Take to the streets for healthcare, but if you really want to make something out of your life, focus on what you can do to improve it. You get all the vacation you want when you are your own boss, but you have to work hard first.
What is really hypocritical is demanding something for free for working less
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