Inequality is Weakening Social Security. Here’s How We Fix That.
When Congress set the cap on Social Security contributions in 1983, they didn’t anticipate forty years of rising inequality. And it’s cost us — a lot.
We all contribute to the creation of wealth. Yet we let the wealth created settle in the pockets of a few. A simple but fundamental change in the source of our tax revenue could help change all that.
By Tom Burgess
“Share the wealth” ran the headline to the CNN story on Pope Francis’s address to Congress.
“It goes without saying that part of this great effort [to deal with the problem of poverty],” the Pope had told lawmakers, “is the creation and distribution of wealth.”
His clear message: We need cooperation and inclusivity. Politics, he noted, “cannot be a slave to the economy and finance.” Politics must be, instead, “an expression of our compelling need to live as one, in order to build as one the greatest common good.”
“I do not underestimate the difficulty that this involves,” the Pope added, “but I encourage you in this effort.”
We sure do need encouragement in this effort. The political rhetoric around how we can reduce extreme inequality has typically little to say about practical proposals to help us become more equal.
But some of the toughest challenges confronting human civilization lend themselves to practical solutions hidden in plain sight. These solutions don’t require us to strike tough compromises or to unravel complex priorities. These policy ideas simply require us to think clearly and act decisively.
I focus on one such proposal in my upcoming new book From Here to Prosperity, set to be published in January 2016. This proposal could provide immediate and sustainable relief, not only to the millions of people struggling to make ends meet, but to all participants in the shift to shared prosperity — the wealthy and the poor, people at the center and at the margins of power.
Too much of our contemporary public discourse on inequality gets caught up in debates across the left-vs-right political spectrum. I take a different direction. I don’t attack or defend supply-side or demand-side economics. I aim to break the spell of obsolete vocabularies and misleading dichotomies, to help reclaim our civilization’s noblest ideals: freedom, equality, and the pursuit of happiness.[pullquote]Let’s keep more of the income we earn from our work and let’s share the wealth we all help create more equitably.[/pullquote]
Strategically, this proposal revolves around shifting the source of public revenue from income to wealth. By making this simple move, we would provide immediate and substantial relief to millions of people trapped in poverty, without jeopardizing the revenue government needs.
The basic theme here: income for me, wealth for we. Let’s keep more of the income we earn from our work and let’s share the wealth we all help create more equitably. By generating government revenue from wealth instead of income, we could take a major step toward minimizing economic inequality.
The initial step would be to abolish income tax for lower earners, the 75 percent of Americans who earn below $67,280. The income taxes these Americans pay currently contribute just 5 percent of total government revenue.
Ending income taxes on these Americans would put over $300 billion back into economic circulation, boosting consumer demand and creating jobs. If this move were coupled with a reduction in payroll taxes, the effect on consumer demand would be even substantial.
All the lost revenue from ending income taxes on low- and middle-income Americans could be replenished by a new tax on wealth assets. We are all wealth creators, but our system allows only the few to accumulate serious wealth. We need a mechanism to return some of this wealth to the nation and all the people. A simple tax on wealth of 2 percent on assets of over $3 million would do the trick.
These tax moves, of course, would need to be accompanied by other policy changes — raising the minimum wage to a living wage, for instance. That raise nationally could easily be funded out of corporate profits.
Abolishing income taxes on the majority and increasing the contribution to public revenue from those who hold great wealth would cause no hurt and bring great relief. Making these changes would immediately bolster disposable income for most working families as well as significantly simplify the tax regime, reducing collection and enforcement costs and indeed minimizing avoidance.[pullquote]Share-the-wealth initiatives succeed when they have a cross-class alliance behind them.[/pullquote]
The danger of increasing economic inequality and persistent poverty should be at the top of the political agenda for the 2016 elections. Our approach throughout needs to be inclusive. History tells us that share-the-wealth initiatives succeed when they have a cross-class alliance behind them. Political will, clear vision, and decisive action could make these changes happen.
As Pope Francis said to Congress, “we must move forward together, as one, in a renewed spirit of fraternity and solidarity, cooperating generously for the common good.”
Let us take heed and do the right thing together for the benefit of the many, not just the few.
Tom Burgess, the author of From Here to Prosperity: A practical policy agenda for a sustainable economy and greater social justice, most recently worked as a CEO of a public relations firm that operated in 80 countries. He has also been a journalist, editor, and broadcaster.