I am going to suggest a completely different approach to the problems of social security. The basic principles behind today's system are basically very straightforward: everybody in the US who needs help in getting the basic necessities of life can usually get it, either from the welfare system, private pension and/or retirement plans, accumulated savings and investments, a job or business, or social security payments.
The basic problem concerns the financing of the social security part of the system. The social security tax is probably the most regressive tax in the US. The less you earn, the more the SS tax hurts; the more you earn, especially above $60,000, the lower the effective tax rate and less it hurts. At the same time, the distribution of wealth in the US has become more and more lopsided. The total current wealth of the population of the US is about $50 trillion, and this wealth is owned by about 10% of the population. In other words, 10% of the population owns $45 trillion, about 50% owns nothing or is in debt, and the other 40% share the $5 trillion that the top 10% doesn't own.
The proposed Federal budget for the year 2000 will collect about $600 billion from social security taxes (that is, the wage tax) and will pay out about $389 billion to social security recipients. About $300 billion will go for Medicare and Medicaid. (From a story in Newsday, Feb. 2, 1999.)
If a 1% tax on wealth existed, the income to the government from this source alone would be about $450 billion. This would be enough to reduce the social security tax to near zero and still have $50 billion left over (without considering Medicare and Medicaid). This $50 billion could be used to reduce income taxes, pretty much across the board.
What would be the effects of such a change in tax policy? First, low and medium earning workers would get an effective raise of about 10% or more. The result would be a powerful stimulant to business and investment. Second, people who now have high earnings would have an increase in income, which would probably go mostly into investment. In this case, more and more people would have an increase in wealth.
Now to return to the wealth tax. There would probably be no need to apply a wealth tax to anybody with assets of less than $1,000,000. In other words, the system would begin pushing more people in the millionaire class. These people wouldn't need income from the social security system anymore; further, they could begin paying the wealth tax.
