How to reform entitlements and save the American dream – without raising taxes
The Heritage Foundation budget plan shifts Social Security benefits to a needs-based insurance program. It ditches Obamacare and changes Medicare to a 'premium support plan.' And it simplifies the tax code.
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Social Security returns to its original purpose: to guarantee seniors don’t fall into poverty. We do this by providing a flat benefit for those who work for more than 35 years. The benefit is set high enough to assure that no senior need fear falling into poverty once they stop working. (Pegged well above the federal poverty index, our benefit would actually be higher than the current average benefit.)Skip to next paragraph
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But because our plan is an insurance program, affluent seniors (those among the top 10 percent in income) would get reduced benefits. Approximately 4 percent – the most affluent – would receive no benefits unless their circumstances changed drastically for the worse.
Changing Medicare to 'premium support'
We change Medicare from a stream of government payments to doctors and hospitals to a premium support system, much like what members of Congress and federal employees enjoy today. Instead of the federal government paying the medical bills of seniors, our plan empowers seniors to purchase health insurance that best fits their needs. Choice and competition will foster innovation and bring health care costs down.
We cannot fully fix our fiscal woes without addressing other unaffordable health policies. Thus, we repeal Obamacare and replace it with patient-centered reforms including a tax credit for families to purchase private health insurance plans. The lowest-income families would get larger credits.
Simplifying the tax code for economic growth
No fiscal plan would be complete without pro-growth tax reform. Some argue the economy can grow fast enough at current tax rates or even with higher levies. Not true. The current tax code already needlessly inhibits economic growth. Raising rates, or adding a new layer of taxes would only worsen the problem.
Our plan completely revamps the tax system, replacing income and payroll taxes with a single rate tax of about 28 percent on income minus whatever you save. If that sounds high, remember that payroll taxes add 15.3 percent to your income tax rate. If you pay the 25 percent income tax rate you’re paying more than 40 percent in total. And our plan eliminates the Alternative Minimum Tax and the so-called death tax, too.
At the end of the day our plan, while economic in nature, is designed to serve a moral purpose. If entitlements are not reformed, the rising generation and several thereafter will be saddled with punitive taxes to pay off the crushing debt we’ve been piling up for decades. Absent reform, the American dream itself – the promise of opportunity and the chance to prosper through hard work – will become a thing of the past.
Our plan ensures economic security for our seniors, while preserving for younger generations the American dream bequeathed to us by past generations.
Curtis Dubay is senior tax policy analyst in The Heritage Foundation’s Roe Institute for Economic Policy Studies.