Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Poor People or Old People - Who Do We Want to Help?

Politics / Social Issues Jul 20, 2011 - 03:49 PM GMT

By: Paul_L_Kasriel

Politics

Milton Friedman, may he rest in peace, used to talk about the "tyranny of the status quo." By that, he meant that it is difficult to change public policy because of entrenched interest groups allied with policies that have been in effect for decades. I would argue that opposition to changes in our current Social Security and Medicare programs is an example of tyranny of the status quo. The original intent of both programs was to provide an income support floor for our retired senior citizens.


So, why do these programs supplement the income directly through Social Security and indirectly through Medicare to wealthy seniors? We do not have similar income support programs for wealthy juniors. If we care about poor people, regardless of whether they are 75 or 25, why don't we means test Social Security and Medicare? Higher income retirees would get smaller Social Security benefits and pay even higher Part B Medicare premiums than they already do.

One common objection to this is that seniors paid into these programs when they were working and are, thus, owed the benefits. Yes, when you work you pay Social Security and Medicare taxes. But, because these programs are largely, in effect, Ponzi schemes, your Social Security and Medicare taxes are being used to cover the benefits being paid out to your parents and grandparents. When you are eligible for these benefits, it will be your children and grandchildren making payments to fund your benefits if the basic structure of these programs is not changed. And, until recently, Social Security tax receipts exceeded benefit payments. This current surplus was folded into the Treasury's general fund, which was used to pay for everything from military activities to national parks. Social Security taxes are just another revenue source for the Treasury - an income-capped flat tax. The Social Security Trust Fund is just a bookkeeping gimmick. When the time comes to tap it, the Treasury will have to raise taxes, issue bonds and/or cut other spending to honor it. So, let's talk straight about this issue.

Now, means testing Social Security and Medicare benefits obviously will be unpopular with those higher income seniors who have "earned" the full benefits promised them. So, in order to mollify this group, let's flatten the federal income tax structure. But, so as not to lose too much in revenue, as the marginal rate structure is flattened, let's cap some popular deductions such as mortgage interest. The basis of supply-side economics is that economic decisions of work vs. play and saving/investment vs. pure consumption are made at the margin - the margin of the tax rate. So, by flattening the marginal income tax structure, the economy's potential growth rate would be enhanced.

I wish that this idea of means testing senior benefits and flattening marginal federal income tax rates were originally thought of by me. But, this is not the case. I got the idea from reading a commentary about a year ago written by Josh Barro, the Walter B. Wriston Fellow at the Manhattan Institute. The Manhattan Institute is a think tank devoted to arriving at market-oriented solutions to public policy challenges. Any errors in representing this view are, of course, mine and not those of Mr. Barro.

Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy

by Paul Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2011 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Paul L. Kasriel Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in