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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The only people that could benefit from this regressive and difficult to collect tax would be the wealthy. The solution is the rebuilding of our domestic production, yes. protected indistries, and putting all Americans back to work. Then we will have a progressive tax base to return to a reborn middle class.
The assumption of a continued internationally flourishing trade with America as the mercantelistic servant, is an illusion. International trade has been a disaster for us. Trying to rebuild it will result in revolution. We will withdraw and regroup or become a colony once again.
Abram's knowledge is for the benefit of our emerging oligarchy. No thanks.
Bring manufacturing back to the US, how novel. Manufacturing creates wealth. Well payed workers are able to afford health insurance, home ownership and on and on
The walmartization of US workers is destroying our country.
It is destroying our culture...
Let us adopt a flat tax for everything. Ignore the fact that we have not done so because the poor will pay a disproportionate % of their income in taxes. The rich do not spend all of their income. They will pay less tax at the expense of the poor. The poor deserve to pay sales tax on luxury items they may purchase. They only need exemptions on food & clothing, rent & medical. How dare they consider purchasing anything else. With the author's suggestion, they will be unable too. Does the exemption extend to cake, so they have something to eat when they have no bread?
I think all the major industrial countries with half way decent national health programs (not necessarily single payer) have both stiff income taxes AND stiff VAT taxes, as well as stiff alcohol and cigarette taxes. Our politicians need to be honest and tell the voters there is no free lunch and that the additional revenue can't just come from the top 5% of income earners. Germany levies a 19% VAT on most goods and services. Food is taxed at 7%. VAT is shared with the states. There is no exemption for internet shopping in another state. Germany's income tax rates top out around 47%. It also helps that Germany spends much less per capita on defense than the US does, leaving more tax dollars for programs that benefit people, not the military-industrial complex. In fact, every major country spends less on defense per capita than the US does.
The Scial Security Surplus fund is well over $3 TRILLION and is in the form of Treasury Bonds (T-Bills) earning interest; these T-BILLS are stored in 'the red brick headquarters of the Federal Bureau of Public Debt in Parkerburg, West Virginia.' "The Plot Against the Social Security" by Micael A. Hiltzig. (Bottom Pg 93) ISBN 0-06-083465-X. HarperColl
These USA T-Bills are the Same as the USA T-Bills that China holds in excess of $5 TRILLION in loans to the USA.
And the US census in 2008 reports the highest number of births since WW II; more than enough births to replace the 48 million WW II Baby Boomer that will begin retiring in 2020. So there is NO diminishing numbers of workers to rerplace the retiring WW II Baby Boomer generation.
The ratio of SS workers and the SS retired pensioners has been a 3 to 1 ratio since the 1970s and this ratio has been more than adequate to pay for SS retirees plus put aside some $6-7 Billion surplus annually without the complicated suggestions made by Mr. Abrams.
Boomers are already retiring!!
Abrams writes, "what then will this country ever rise to the occasion to fight for?" So the most essential item he will rise and fight for is to create a progressive tax. Hmm, seems like fighting to protect freedom or your family might be a more just cause to fight. But, you must really hate the rich. They only pay 90% of the taxes already. How dare we expect the middle and lower class to pay for 10%.
What amazes me about Democrats and Republicans is they only understand half of freedom. The Democrats are correct that the government should treat all citizens equally on a social basis. This includes gays in the military (and marriage) as well as non-Christians. The Republicans would rather dictate social behavior. However, the Dems don't realize that equality should pertain to economic issues as well, particularly taxation. This the Repubs get. We should tax everyone at the same rate. The rich will still pay more, but it is equal taxation as far as treatment.
Social security taxes are not regressive. The program is established that we "pay into" social security to receive a retirement benefit. What we pay in is tied to our benefit. There is absolutely no moral justification that the rich should pay more in social security to fund someone elses benefit.
Let's do this instead. Let's cut taxes for everyone, reduce the size of the inefficient government, and watch everyone become wealthier.
See Paul Abrams's Profile
What I said we should be fighting for is healthcare for all. Taxes are only a means to pay for it. My proposal is far fairer and far less onerous on anyone because it is broad-based.
Horse puckets.
You might be happier living in China. "America is great because America is good" said DeTocqueville centuries ago, when ascribing our prowess to his fellow Europeans.
Monarchies, Aristocracies, Oligarchie
The "rich" pay 90% of the taxes because they HAVE the money. We enjoy a way of life which allows this scope of opportunity. Our most precious resource is our faith in one another, dedication to the "human" resource", common purpose and compassion.
Those who sacrificed blood, sweat and tears to make this nation what it is; those who gave their life in it's defense deserve not to see it succumb to the plebian notion that somehow we "get what we deserve."
The author is correct. He is my "fellow citizen." I don't mind paying the taxes.
What I want to know is what will you sacrifice for your country?
Social Security is already progressive when you look at it from the benefit standpoint. Low income wage earners can get as much as 90% of their income replaced by Social Security when they retire. High income people get about 20-25% of their Social Security base income replaced. The payout has always been biased in favor of low income wage earners. For retirees with very low incomes and limited financial assets, there are additional benefits available through SSI (Supplemental Security Income).
Wow, were you an executive at GM or Chrysler in a past life? Or are you Frank Luntz? Or a focus group tester for the RNC? Those lucky low wage earners, look what they have to look forward to when they retire!
I agree the wealth should not pay the payroll tax on all their income because they get the same monthly pay out as a low income person.
How about this logic: since rich people can afford the best health care, they live longer and will collect more in SS benefits over their life, while a low wage earner who has no health insurance, doesn't see the doctor, doesn't get the cancer diagnosed, dies at 64 and never collects a cent. Now that low wage guy has paid infinetly more than the rich guy, so now it's a regressive tax again.
The cost issue is the biggest, phoniest issue out there in both Social Security and Health Care.
Social Security is projected to pay out 100% of its retirement benefits for the next 30 years or so. Name another program that is this well funded. It is the Medicare and disability portions that are the mess, because of our bottom of the barrel health care system.
We already pay twice as much as we need for a single payer health system. Somebody please do the math. We ALREADY pay $7,000 per person for each of the 300 million Americans (almost 17% of GDP). For that, 25% are either uninsured or underinsured. Government alone already pays about $3,000 per person per year for health care. The other $4,000 is currently split between individuals and businesses.
Every other develooped country pays between $2500 to $3500 per year per person for 100% coverage.
The current American health care system is the worst in the developed world. The U.S. could save $1 trillion per year just by going to any of the other systems that are in place throughout the developed world. Germany has had universal health care for 120 years. What is the U.S. problem?
We don't need additional money. We need to get rid of the leeches and price gougers in the current system who add nothing to health care but plenty to health care costs.
Well said. With all the fuss about SS people have been fooled into thinking it's in major trouble when it isn't. And it only needs minor tweaking to keep on working well (don't overhaul a car when a tuneup is all that's needed). Perhaps that's what the right doesn't like: a shining example of what they might call socialism that has worked well for decades.
Medicare does have problems, which is why a public healthcare option is the only answer. And as you've said it has problems because of the excesses in our healthcare for profit system that it's attached to. Not because it's government run. It works elsewhere and it will work here.
Lets have a sales tax dedicated to Military spending. 1. Then people could decide if we want to pay to invade other countries for a political advantage. 2. Transparency, We could find out which company sells the $800.00 toilet seats. 3. We could lower the tax and end an illegal war. 5. Republicans will have to raise taxes if they want buy more expensive unneeded weapon systems from their former companies.
If you run for president, I'll be glad to vote for you.
Genius. Let's do it.
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