Fix Entitlements

Republicans continue to call for “fixes” for the Social Security program and the Medicare Program.  What they do not say is how they define the word, “fix”.  Today, the problem with both programs is the dependence upon a tax on the salary of working people.  This is not a tax on the income of either working people or the income of those who have income other than a wage or salary.  This means a vast amount of people’s income is not subject to either FICA or Medicare taxes.  Starting in 2013 that changes slightly.  At that time income from investments for high income people will be subject to a Medicare tax thanks to Obamacare.  While that will be a partial fix for the Medicare program it will do nothing for Social Security.  The problem, in a nutshell is that in America today, there are not enough people working at jobs that are subject to either FICA or Medicare taxes.  Income from labor as a percentage of GDP has fallen to less than 50% of the 1973 levels. While percentage of personal income from all sources has remained constant and actually increased slightly. Keep in mind that most of the funds for Social Security and Medicare are derived from taxes on wages and salaries of people who work. Increases in personal income from investments and appreciation of other assets do not result in contributions to either program.  As long as contributions from labor continues to decline at the present rate, the entitlements will be in trouble unless there is a large increase in the percentages deducted from each paycheck.  When tax policies favor moving jobs out of the country as they do at present, both Social Security and Medicare will remain troubled.  The same is true as long as tax policies favor earning income from investments rather than labor.  There is one other problem with both Social Security and Medicare.  That problem is the reality that Republican “fixes” are designed to scuttle both programs.  Conservatives objected to both programs when each was enacted and Conservatives have worked to try to eliminate both programs from the first day they were initiated.  So, when you hear Republican talking heads ranting about the need to “fix” the entitlement programs first ask them what they are doing to create jobs that pay decent wages.  Reversing the trend in the above graph is the best fix for both entitlement programs as well as the overall economic health of the country.