Cut America's debt, but spare Social Security

Congress can cut the budget without hurting Social Security, Medicare, and other social insurance programs.

J Pat Carter/AP/File
Retired truck driver Frank Ferrira talks about Social Security Oct. 15, 2009, at the Pembroke Pines, Fla. Southwest Focal Senior Center. There are ways to cut the budget deficit without touching social insurance programs like Social Security.

America is whipping itself into a frenzy because of debt. Listen to the chairmen of President Obama's bipartisan fiscal commission and other deficit-cutters and you're likely to hear an "underlying moral tone," as economist John Irons puts it. The debt-cutters say Americans need to:

•Face up to hard times.

•Punish themselves.

•"Purge the soul of the evil deficit-spirit," says Mr. Irons, research and policy director at the Economic Policy Institute (EPI), a liberal think tank in Washington.

It's not that more budget discipline isn't needed. A MacArthur Foundation poll finds that more than 70 percent of midterm voters say it is "very important" that Congress take steps to reduce the national debt. Another 24 percent say it is "somewhat important."

But does it have to be so punitive? Irons is one author of a new "budget blueprint for economic recovery and fiscal responsibility" that would spare low-income and moderate-income families from the "drastic cuts" and some other austerity measures in the chairmen's plan.

"We strongly oppose the idea that America's fiscal challenges should be solved by cutting longstanding social insurance programs [ Social Security, Medicare, Medicaid, etc.] that have brought security and prosperity to millions of Americans," says the 84-page "blueprint" drafted by the EPI, Demos, and the Century Foundation. These programs "have proven to be effective mechanisms for limiting widespread catastrophic hardship" during the Great Recession.

Nevertheless, the plan forecasts a balanced budget by 2018, where federal income matches federal outgo, excluding interest on the federal debt.

One way the plan does that is by taxing the rich more sternly than at present. "Millionaires can afford to bear some of the burden of deficit reduction," says Irons. Income inequality has grown for three decades.

For example: Capital gains and dividends would be taxed the same as regular income at a marginal rate as high as 39.6 percent, instead of today's 15 percent. Millionaires would also pay a Social Security tax of 5.4 percent on most income. (At present, only $106,800 of income is subject to the payroll tax.) Their heirs would be subject to a tax on estates exceeding $2 million. The $1 trillion in annual tax breaks – various credits, preferences, and deductions like the one for interest on mortgages – would be trimmed down for the rich.

Many members of Congress are rich themselves or beneficiaries of campaign donations and clout of the well-to-do. So taxing the rich isn't popular in Congress. It kills jobs, conservatives claim.

Irons says he's "under no illusion" that Washington will pick up this blueprint and pass it in bulk. But he hopes some of the plan's specific suggestions for boosting revenue will catch on.

Another obstacle to this liberal plan is that it would boost the size of government. By 2020, federal revenues would equal 21.7 percent of gross domestic product, the nation's output of goods and services. Over the past five decades, it has averaged 18.2 percent of GDP. One major reason: Uncle Sam will pick up more health-care costs.

The 2020 federal deficit would be "manageable," the plan maintains. Even though federal debt held by the public would grow from 66 percent today to 83 percent of GDP, Irons maintains the United States won't suffer the fate of Ireland because the US remains "the safest place in the world to put your money" and deficits will be under control.

David R. Francis writes a weekly column.

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