As we prepare to hear that the Super Committee wasn't so super after all, and totally failed, I thought I'd pretend a deal was struck. Something to make it seem that Congress is capable of compromising and accomplishing anything, even if it is just a delusion housed within a personal blog. The ideal deal would include these components:
• Total tax collections, including local, state and federal taxes, average 33.1% of gross national income. I would increase this to 35%, with the provision that these funds be earmarked for deficit reduction. That is, this additional 1.9% is unavailable for expenditure, except to pay down the principal debt. What's going on in Southern Europe now is a painful reminder of the consequences of a citizenry thinking they can get something for nothing. As anathema to politics as it may be, deficits must be paid off if we expect them to go away. My separation of these new funds explicitly for debt reduction would ensure they don't get absorbed by the ever-fattening public domain.
• Social security means testing. I would institute a sliding scale for social security so that multimillionaires who do not need social security payments do not get them. Warren Buffet has suggested this and it’s a good idea. Social security would be gradually phased out for high-earning households, until individuals making more than $600K per year do not receive benefits. I would also increase the cap on FICA-eligible income, at least doubling it. A commission should also be formed to plan to offer optional personal savings accounts to replace social security for those born after 1975. Private savings accounts could grow the retirement income for millions, increase private capital availability for growing public companies, and reduce the government's debt obligations.
• Higher premiums for high-income Medicare beneficiaries. This is means-testing applied to Medicare. For individuals who can pay more for their healthcare and not be subsidized, it is fair that they pay for the service they receive. Right now, everyone pays an equal payroll tax for Medicare. Individuals would continue to pay the same percentage tax, but wealthier individuals would have larger copayments for the services they receive.
• Reduce the size of the federal work force. The single biggest component of the federal budget is employee salaries, accounting for roughly 25% of discretionary spending. The current federal work force (excluding postal and military) is about 1.9 million full-time equivalents. I would aim to reduce this to 1.5 million over the next decade. There are too many bureaucrats in the federal government, often doing work that exists solely because of how many layers of people and processes must be managed to complete any task. The government will get more efficient as it gets leaner, saving money not just in salary reductions, but in second order efficiencies. I would not fire people, but offer conditional early buyouts, coupled with attrition. It is important though that these reductions not be made simply by tenure. There are a lot of old, unproductive employees in the federal workforce, and reductions should not be made at the expense of retaining top-talent that happens to have less experience.
• Reduce the mortgage and local tax deductions starting at the 99th percentile of income. For individuals in the top 1% tax rate, the amount of their homes and local taxes that could be deducted annually would be capped at the median amount of mortgage payments and local taxes. It makes sense for the government to help incentivize home ownership for middle class workers. It does not make sense for the government to subsidize mansions and write-off multimillionaires' property taxes.
• Revenue neutral carbon tax. I would tax carbon and offset it in income taxes.
