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How to Fix Social Security and Balance the Budget

August 12th, 2010 · 1 Comment · Economics, Politics, Populism

Michael Hiltzik’s August 6 column in the LA TIMES was pretty thought-provoking on the current Social Security dialogue. And it leads to some rather interesting points that should be raised about Social Security solvency, Medicare, Medicaid, and the future of entitlement programs.

It also brings up some questions on taxes. We will show exactly how we can get out of this economic mess while not touching a dime of Social Security. But the big boys won’t like it because it is true and it is easy.

Hiltzik also spoke indirectly to the complaints among the columnists and electronic media commentators, like Charles Krauthammer, Ann Coulter, Limbaugh, Hannity and Beck among others who are the door knockers and pilot fish for the rich.They complain constantly on behalf of the billionaire oil men and merchandisers and health industry CEOs that they are being taxed only to help the poor. The intimation is that the poor are basically lazy or stupid.

In rebuttal to the latter point, about the–you know–stupid–is that Sarah Palin has made $12 million this last 12 months and she still thinks she can see Russia from her porch.

Let’s be clear up front. There is no reason…none at all…to tamper with Social Security delivery as it is right now, with one small exception. In other words, we need not worry at all about changing any part of it, except perhaps to raise the disability segment from about .8% of total funds to 1.1% and that, according to the SSI actuaries will fix disability—the costs of which have gone up a little. That would fix it for a long, long time.

That’s what you have to know and the rest is about why that is true and why Hiltzik’s column was significant.

Since 1983 or 1984, the Social Security “fund,” that amount of money that Americans pay into Social Security has run a surplus. It has done so until the last couple of years. So the fault is not that of the American people in paying too little into Social Security. The problem is that the American people then allowed their Republican Congresses and Republican Presidents to remove that money from the Treasury to pay for other things.

You could say that it was borrowed. You could say that it was misappropriated. You could say that it was stolen. But the point is this: those funds that were dedicated to Social Security, 6.5% paid in by the individual taxpayer and 6.5% paid in by the employer were supposed to be committed for the long-term solvency of Social Security.

Instead, the government spent more money than it took in and among those things it spent on were tax cuts that a majority of Americans even said at one point that they could do without and would rather have had deficit reduction. But George W. Bush and Dick Cheney, even in the face of the resignation of their Treasury Secretary over it, went ahead anyway.

Were those tax cuts in any way justified? Alan Greenspan, the head of the Federal Reserve at the time of the tax cuts now says; “No. They were not.” Period. But Bush and Cheney went ahead and the result was a tax break of $120,000 every year for ten years for households making $1,000,000 and up. Total cost to the country: (and to Social Security, since that was where there was a surplus) $1.2 trillion.

Now some have said that the costs of the stimulus of early 2008 under George W. Bush were spread out among the people so they should also be considered and they are costs from which all the people benefited.

The fact is that the “Voodoo Stimulus” as some referred to it was actually just one-time tax cuts in the form of tax rebates to individuals, giving them funds, amounts of money ranging from $300 for individuals at the low end up to $1,200 for a couple at the top end. It was not a bad benefit. It skewed towards those with lower incomes and deliberately tried to put money into the hands of consumers who would spend it immediately.

This was “only” $120 billion dollars and it came at a time when incomes were falling and unemployment was on a downturn. So its effectiveness was difficult to measure. But the point is that it really has little to do with Social Security.

Although it did go to individuals across the board, it was a drop in the bucket compared to Social Security which takes in that much money from payroll income revenues every two months. Trying to equate some stinky little tax rebate with a $1.8 trillion tax cut plus an unfunded pair of wars costing $2 trillion is just ridiculous.

Here’s the problem. Hiltzik’s point and it is one that is very important, is that Social Security and entitlements in general are one-half the budget, yes, but they are paid for. They are not a debt. We funded them fully from payroll taxes but then the government–in every case the new Neocon-Republicans–borrowed money from to pay for two wars and tax cuts primarily for the rich, even if some small amounts apparently also did go to the lower incomes.

But here’s what Bush and Cheney did. They came in with a very small margin of electoral victory but with control in the House and Senate. They proceeded to loot the country in a dozen different ways…tax cuts to mostly wealthy individuals, loosened regulations on mining and drilling and in particular gave more tax cuts for oil corporations themselves, so that EXXON now pays zero on $40 billion in profits.

Even before coming to office they spoke of planning a war against Iraq and once inside the office began planning for it even before 9/11. Once they started the war in Iraq, they passed out tens of billions of dollars in contracts every year for 8 years to their friends…no bid contracts. They gave away millions of acres of public lands to drilling, mining and timber corporations.

They gave away a contract to the pharmaceutical corporations to provide prescription drugs to Medicare with the stipulation that Medicare could not negotiate better prices and then under pain of federal arrest and indictment they prohibited Americans from going to Canada or Mexico to get drugs that were cheaper by far than in the U.S. Some people did die.

As soon as the legislation was passed, and before it took effect, the drug companies raised their prices by an average of 26%, the exact amount they needed to make sure that the prescription drug benefits cost them nothing in the short run. People got discounts but on drugs now costing an average of 26% more…so they saved nothing. The drug companies got an agreement that locked retired Americans into higher drug costs for as far as the eye could see and gave an estimated windfall to Big Pharma of $727 billion over ten years.

By the way, who pays for the parts of the coverage that guarantee discounts after certain minimums and the “donut hole” are reached, something like $1,500 out of the individual’s pocket and also the subsidies for low income people? You and I do.

But remember…the pharmaceutical companies can charge us whatever they want. Bush guaranteed that for ten years at least, until 2019 in the Prescription Drug Bill, Part D of Medicare. That’s why we say it is more looting of your Social Security money that is being borrowed…not paid for in taxes.

It is not that we all are paying for it. It is that they say that we now should pay for it and other things Bush did by cutting Social Security. No one wanted it except the big drug corporations. It was a diversion…and still is…from the fact that we pay four times as much for drugs made right here in the U.S. as citizens of other countries.

So what is the solution? Here it is plain and simple.

The Bush tax cuts in 2001 and 2003 reduced federal revenues and added to the national debt by about $1.8 trillion dollars. Those tax cuts reduced the top marginal rate and everything down the line by 4%, from 39% down to 35%.

So, let’s suppose that we simply reversed the amount and then added a little as either a penalty for screwing the American People or a little more just to balance out the reductions that the top 1% has received in benefits since Ronald Reagan. We raise the top rate to 55%. That would be a 20% increase over what the top guys pay right now.

No one will die. No one will starve. No one will go broke and not many will even feel the difference. And here’s why…before you start to feel sorry for the rich. Whenever the rich are taxed too much, they can get around it very simply. They invest. Then when the company makes money down the road they make about five times as much as they invested and they are taxed at only 15%.

The problem under Reagan and ever after has been that the rich have no incentive to invest because their taxes are so low they just pay them and go out and buy a yacht. In the 1950s and 1960s, the government supposedly got $9 dollars and the earner got $1.

Well, that wouldn’t have worked out very well. So the tax man said…invest that excess capital to expand the economy and we’ll collect those taxes from the new businesses and new workers. It worked well…until Reagan and Voodoo Reaganomics.

If you moved the top marginal rate up to 55% that would be five times more than the Bush Tax Cuts that moved $1.8 trillion from the Treasury mostly into the pockets of the rich. In other words, this top tax rate, it would either move $9 trillion onto the positive side of the ledger or it would explode into the economy with a tremendous impact on jobs and businesses.

That would mean $900 billion a year on top of current revenues. It would balance the budget by itself. But let’s not stop there. Exxon and BP Oil and many other corporations pay no taxes at all. If Exxon had paid even ten percent of its total income in U.S. taxes we would have another $4 billion a year in federal revenues. Why not let them keep $9 of the profits that they make from $3.50 per gallon, rip-off oil prices and patriotically give their country $1 during war time. What’s wrong with that? Not a damned thing.

But let’s not stop there. We have two wars going on and a military budget larger than all the countries in the world combined. We could cut it by $200 billion and never flinch. So let’s do that. At this point, with the reductions coming in health care and huge reductions in Medicare and the new national health system if we can get a public option…we will be paying down the debt at a rate that will close it out to about $3 trillion which, at that time would be less than 20% of GDP—with those measures plus paygo…i.e., no increase without cuts from now on—in about 30 years.

But the point that Hiltzik makes is that we’re not paying for crappy policies that do nothing like that just described but merely keep hacking away at the middle class while the rich keep 80% of their income and don’t invest it in the U.S.

And all this while the rich enjoy the good life while the rest of the country…because all the jobs are shipped abroad…and all the Mexicans, good and decent and hard-working people, are coming here to work at the menial jobs that are left here in the United States. Instead of attacking Mexicans we should be attacking the policies of the Neocons and those who will not create good jobs here in the United States.

We have failed African-Americans miserably. Yes, half the country wants to help them and those who now control the political power in about a third of the country prevent them from getting ahead. African-Americans have been shuttled and herded into ghettos in this country, going from a hundred and fifty years of being whipped or shot if they tried to get an education to a hundred years of a second-class education while being second-class citizens.

Then they were accorded 40 years of opportunity—just opportunity—to which an astonishing number have responded, creating for the first time a real African-American middle class. There are 37 million African Americans in this country, who descended, most of them from about 5 million slaves who were imported from Africa and sold like animals, like oxen.

But that African-American middle class is is minuscule compared to the problem. In Atlanta, 20,000 people lined up to obtain applications for housing subsidies. In order to qualify you must have an income, in that area, a household income of no more than $16,000.

Which means that if you pick any one of those 20,000 people, almost all of whom are African-American, they will have less than $16,000 income. Take $1,333 a month out of the bank and try to raise your family on it for a year. Then and only then, ask yourself how difficult it is—even with your level of skill—to raise yourself out of poverty.

It is even more difficult for a pregnant 15 year old, of a mother who was pregnant at 15, born of a grandmother who was pregnant at 15. That’s a very short three generations. Now take it back ten and see how hard it would be to break that cycle.

If we have 20,000 people in Atlanta alone who are in deep poverty, it bodes ill for the rest of the country. Because our neglect is now catching up to our economics. This is the economic revolution. It has been here all along. We don’t need to go to Iraq or Afghanistan to see the problem. Just go downtown. Go to Atlanta or Kansas City or Chicago. Drugs and guns…death and degradation.

This is our economic revolution. Overturn our history of racial mistakes with education, housing, basic jobs and raising one whole segment, 30 million people finally into the mainstream of American life. Education…a massive program….and a serious rehabilitation of the most neglected part of society. We cannot carry 37 million people along in an economy our size.

Or, if you are going to be a destroyer, be a good one. Rather than spending all this money on welfare, why not put African-Americans in concentration camps, death camps? They deserve it don’t they? Deserve it for having made the great mistake of being captured by slave traders from the Southern states and having had ancestors who survived to create another generation and then another…who somehow survived? The mistake of surviving beatings and whippings and shackles and starvation?

Some people may be shocked–thinking to themselves that we have come a long way from concentration camps and exterminations. Have we come so far? Have you lived in a black ghetto? How different is it to have your child shot dead through the walls of your house from stray gunfire? You think that the concept of confinement is a fantasy…a nightmare of unreality?

We simply create an atmosphere that is worse than a concentration camp….a confined space where African-Americans try to survive…clearly 20,000 of them frantic to even find shelter. We simply torture most African-Americans for 60 years and they die in the poverty into which they were born and never left. That is the reality if you are African American.

It may not seem so now, but African-Americans are the future greatness of this society, if we can make ourselves understand that we must create a better life for all Americans. People who come from the depths, like the Irish and the Jews, make the best and most compassionate leaders in business and government when they finally break through. It is time we faced our problem…not the problems of the African-Americans…but those we have created for them….the kinds of problems we created, beginning in 1620.

It was called by Gunnar Myrdal in an essential work done in the post WWII era, “The American Dilemma.” But it is not. It is the American Disgrace. We should get up every morning, look in the mirrors and see tears for the way we treat African-Americans. We should do the same for Native Americans for that matter.

We should be spending as much today…and we should have been spending this much for the last 40 years…as much as we spend in Iraq every day in order to educate and train African Americans for lives in our society. Why will we build homes and schools and an electric grid for Iraqis and not for those whose indentured great-great-great grandparents were forced to build the Capitol and the White House?

The point is not to give them section 8, subsidized housing. It is to give them education, training, meaningful work, responsibility and the real chance, not a phony promise, of a decent, dignified life that will create a succession of generations of heirs in that tradition.

We should be pumping money and education and anti-drug programs and…hope…into African American ghettos in an enormous crusade. There’s a worthwhile crusade for George W. Bush if he wants a crusade. It would seem the least he could do to redeem himself. And we should do the same kind of thing for Native American reservations.

We have the rich and we have the poor and we have the ultra poor, who are basically statistically all African-American. We must decide, once and for all, if we are going to take pride in America or become just another European nation and lose their respect for being even less than they are when so many left Europe to make a better land here.

We don’t have to cut anything. We simply have to re-order our priorities and ask those whose ancestors were not brought here as slaves, but whose families came here as hope-filled immigrants, unencumbered by anything but poverty and perhaps language to reach out to others less fortunate.

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