A Christian Liberal is NOT an oxymoron.

Posted by XT on September 3rd, 2009 in US News

The LA Times has a vague, but ominous warning about the federal deficit. They write:

President Obama’s critics naturally want to blame the geyser of red ink on the grand ambitions of his administration, including the $787-billion stimulus package and expensive new health insurance subsidies. Longtime budget analysts, however, have seen this problem coming for years, even decades. They cite two primary factors: healthcare costs that have been growing faster than the economy since the birth of Medicare and Medicaid, and the looming conversion of a generation of wage-earning baby boomers into Social Security beneficiaries.

This is absolutely true. Medicare, Medicaid, and Social Security – as they are currently structured – are facing a swell of demographics. If nothing is done; then American workers will be overburdened with providing healthcare and cash subsidies to people who are out of the workforce.

This need not be a scary thing, though. If American wages rose sufficiently to cover the cost of the additional demands, then it would be no problem at all. The problem is that American workers are facing very stiff downward wage pressure from international competition – competition made all the worse by so-called “free-market” deals which allows manufacturers to relocate outside of US wage laws to secure lower costs, but does not adequately allow for any mechanism by which American workers can relocate to those areas and (by some magical never-quite-explained method) force foreign wages to rise.

In order to pay for these programs without overburdening Americans with higher taxes (when we have some of the lowest marginal tax rates in the world), the government is basically financing it through credit. This is where the debt comes from. Some of it we own ourselves, but some of the debt is sold to investors – and that means a lot of foreign governments. In effect, this means that American taxpayers will be financing the social programs for China and Europe for the next fifty years, in addition to trying to pay for our own.

Then The LA Times doesn’t bother with this kind of explanation. Instead, they simply jump to this:

Unless lawmakers agree to make unpopular changes to Social Security, Medicare and Medicaid, those programs will remain on track to break the federal piggy bank.

What “unpopular changes” are they talking about? The easiest ones to accomplish are probably not what the Times has in mind. For example, reducing the combined Social Security tax, but eliminating the ceiling on that tax, would flush the system with tons of money. Plus it would reduce taxes for most working people.

As it is currently structured, every employee pays 6.2 percent of their gross wages into the Social Security Trust Fund. Employers match that payment. But this tax only up to about $102,000. After that, no Social Security tax is paid at all. This yields an effective tax rate of 12.4 percent for more than ninety percent of American workers…and an increasingly lower tax rate for anyone who earns more than that. So the maximum any person may contribute to Social Security in a single year is $12,648 (which is not chump change, by any measure). By the time a person earns a million bucks a year, their effective tax rate is only 1.26 percent.

Using this recipe, the Social Security Trust fund collected $656.1 billion last year from taxation. But in 2007, the IRS recorded some $5.943 trillion in total income (Excel file) throughout the country. This same year, there were some 4,520,181 returns whose income exceeded $200,000 – which I’m using as a modified ceiling because most of those returns are probably from married couples. They paid a rough total of $57,171,249,288 in Social Security tax – with each return maxing out their contributions.

That means this group paid about eight percent of all Social Security contributions. I’ll go out on a limb and say that’s hardly over taxed (they are four percent of filers). This group also claimed a total income of $2,445,367,833,000 – nearly two and a half trillion dollars. But only $90,406,200,000 has been subjected to Social Security taxes. Which means, as a group, they have paid only 3.7% Social Security tax – compared to 12.4% for everyone beneath their income level.

This means that some $2.355 trillion were not subjected to Social Security taxes. A simple five percent tax on that amount would have yielded $117 billion – an amount equal to some 17.8% of what was actually collected. If half of that were kept as a means of making the system more viable, the rest could be dedicated towards reducing the tax rate on those who don’t exceed the Social Security ceiling. That would be about $58 billion in tax cuts directed towards some 92 million taxpayers – which works out to about $630 per year per taxpayer (of course, it wouldn’t actually be distributed evenly or $24 per two-week pay period.

It isn’t much to put in your pocket, but to put $12 per week in your pocket and ensure that Social Security is around for when you retire…it’s a damn good deal.

As for Medicare/Medicaid – the only thing needed to flush the system with cash is to stop refusing healthy people coverage. Right now, the only people who are covered under public health care are those who are guaranteed to make expensive demands on it. Not only that, but they are also largely prohibited from earning an income that could be taxed to defray the cost of their coverage.

I find it hard to believe that, if explained in a straight-forward manner, these decisions would be unpopular.

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