Tuesday, November 30, 2010

What Matters? The way we manage our lives together

There are many things we get politically worked up about. Some of these things matter, but many do not. When we can be bothered to get worked up about issues that bear on our common life together we very often eschew any level of complexity and insist on over-simplifying matters, which opens the door to rank demagoguery. As the great American cynic and realist, H.L. Mencken, once observed: “For every complex problem there is an answer that is clear, simple, and wrong.” This seems to me an apt, if very generalized, description of much of the Tea Party agenda.

It has become a political cliché this past year, given our serious fiscal woes, to insist that as a country we need comprehensive entitlement reform. I certainly number myself among those who agree with this assertion. Too often the discussion stops there, or progresses to some inane call for cancelling or dramatically curtailing all entitlements. I want to look at two programs that must be reformed if our country is to become fiscally sound: Social Security and Medicare. Regaining fiscal soundness will, of course, require more reforms than these, but Social Security and Medicare together make up the bulk of what needs to be reformed.

Dallas accountant, John Karrick, in a recent letter-to-the-editor of the New York Times, addressed both of these programs. He points out that Social Security is managed like a Ponzi scheme, the only difference being that it is considerably less sophisticated than a successful Ponzi scheme. He begins by pointing out the obviously regressive nature of both F.I.C.A. and Medicare payroll withholding. Indeed, everyone who is legally employed in the United States, no matter how little they make, pays 6.2% of their salary into Social Security. However, no F.I.C.A. is paid on salary over $106,800. He notes that all workers pay 1.45% into Medicare. Unlike Social Security, Medicare has no upper limit.

Simple arithmetic shows that U.S. workers pay 7.65%, up to $106,800, of their salary for Social Security and Medicare, which means the vast majority of workers in the U.S. pay this on their entire salaries. Nonetheless, despite the regressive nature of these mandated withholdings, there is a certain sense of fairness: you pay into Social Security and later receive Social Security (F.I.C.A. is not technically speaking a tax, but paying into an account) and the same is true of Medicare. Beyond that, your employer matches your 7.65% for a whopping total of 15.3% of what you make! Karrick is correct to point out that “[t]his amounts to a tax on employing people in the United States.”

I disagree with Karrick that we can find a better way to fund our Social Security and Medicare obligations. I am against privatizing Social Security, as are an overwhelming majority of people in the U.S., regardless of political affiliation. What is truly problematic, what we should all be much more worked up about, are these government-run Ponzi schemes. In the case of Social Security, Karrick is correct when he writes that “[t]oday’s contributions are used to pay beneficiaries who contributed yesterday, and the surplus of current contributions is ‘lent’ to the federal government and used for general spending.” It is this disastrous reality that has resulted in Social Security’s rapidly approaching insolvency. If everything that U.S. workers and employers had paid into Social Security remained in the trust fund from its establishment, Social Security would be solvent with a surplus (i.e., we could look at reducing contributions instead of ways to increase them- like upping the amount of salary one has to pay F.I.C.A. from the current $106,800). This is what Al Gore was talking about back in 2000 when he discussed his “lock box.”


Arising from my disagreement with Karrick over whether we can find better ways to fund these huge obligations is my opposition to his idea of formally melding Social Security and Medicare into general revenues, taking funds out of other taxes, most particularly the personal income tax. My reason for disagreeing is that rather than “reducing the tax burden of lower-income Americans,” as he asserts, I believe it will raise taxes on them. However, I readily concede that it would remove a disincentive to hire employees.

As Rich Rickman, writing over on Commentary’s Contentions blog (from whence I was pointed to Karrick's letter), points out, “[t]he Ponzi scheme underlying the Medicare system is even more blatant.” He points to the change made to your Medicare contribution in the truly horrible health care reform known as Obamacare: “[t]he legislation dispensed with the interim step of sending the money to the Medicare Trust Fund, to then be ‘lent’ to the general fund and spent on non-Medicare programs. Instead, the money from the new ‘contribution’ will go straight to the general fund; Medicare will not even get a government IOU to hold in ‘trust’.” Unlike Rickman, I am not bothered that the investment earnings of those making more than $200,000 per annum is now subject to the Medicare tax. It is a way of making the tax less regressive and, I believe, serves the common good by helping to shore up Medicare.

Not until we get worked enough to pay attention to details like these will we come anywhere close to making progress on these important matters that affect us all. In the meantime, we will continue to see-saw back-and-forth between the unabashed and ultimately disastrous statism of so-called progressives and the equally deleterious hyper-individualism of so-called conservatives. This is true of many issues, including immigration. In terms of Catholic social teaching it balancing solidarity with subsidiarity that fosters the common good.

Politics in the U.S. has become a net gain/net loss proposition. As it has been said of diplomacy, which is nothing except politics on an international scale- politics is the art of compromise. There are several ways to accomplish the end of reforming Social Security and Medicare, but reform them we must!

Maranatha

1 comment:

  1. A very good post. I also read the following one about taxes. To put it succinctly, I am very much of the opinion that government need only be as large as is needed and that it function effectively. I would not support wholesale abolition of either Medicare or Social Security, but I think it is completely reasonable to reform and/or tweak them. Not just to keep our government solvent, but also to ensure they function to fulfill their desired purpose.

    I also have a question that I hope your theological expertise could shed some light upon. I have a friend and fellow Catholic who thinks that because of man's fallen nature, government should be kept as small as possible to reduce potential abuses. Also I very much get the impression that he believes because of Original Sin, government is ill-equipped, and should not even try, to combat social problems.

    Would this be too pessimistic a view of human nature? It seems to me that despite the mistakes and sin that humans commit we should always strive to make things better, particularly in the way Christ taught us. I would think there is a role government can play in this, the exact nature of this role is certainly debatable, but I wouldn't dismiss it altogether. I would appreciate hearing any thoughts you have on the subject.

    Also, what you said about compromise was very well taken. The very Constitution of this country was created in compromise, and is at its best when compromise is reached. I fear this is a trait we are in danger of losing.

    http://www.jimdom.net

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