The Fix Everything Plan
Fortune, January 5, 2005
How to shrink the deficit, save Social Security, and salve our social ills in a few strokes
onsidering the state of the union and the federal fisc, maybe it's time we fired both parties. President Bush wants to build on his record red ink with fresh trillions in off-the-books debt to partially privatize Social Security (while leaving 45 million Americans uninsured). Democrats have found their message, which is screaming "No!" while ignoring the fiscal train wreck that looms as boomers age. What you'd never guess from the bipartisan charades is that there's a way to shrink our deficits, save Social Security, and salve our social ills all at once. I call it the Fix-Everything Plan.
Slash the deficit.
If you listened to the orations of Bush and John Kerry during the campaign, you'd think it was impossible to do more than cut the $400 billion-plus deficit in half by 2009. But that's merely the limit of what our fearless leaders were willing to discuss. We can do much better than that by following two simple steps: (1) Freeze all federal spending for one year (except for the new prescription-drug plan for low-income seniors); and (2) Repeal the Bush tax cuts that go to the wealthiest Americans. Under this freeze-and-rollback plan, the deficit would fall from 3.6% of GDP in 2004 to around 1% of GDP just two years out. That gets us to a manageable $100 billion-ish deficit-and at a time of war, it's not asking too much.
Save Social Security.
There's no need to privatize and no need to punt. All we need do is change the way initial Social Security benefits are calculated, updating a person's earnings over his working life based on the change in average prices since earlier years, not on the (higher) change in average wages. In plain English, this shift to "price indexing" would mean that we would no longer promise higher real benefits to each successive cohort of retirees. With the boomer crunch coming, it isn't right to pledge more to one group in perpetuity when so many other major pressing needs (e.g., recruiting better teachers for poor children) have yet to be funded.
This one change more than restores long-term solvency to Social Security, with no new taxes or borrowing. And "fixing solvency first" would clear the decks for the discussion we need on creating new accounts outside Social Security that Uncle Sam could progressively match to help ordinary folks build bigger nest eggs.
Lift the bottom.
Once we've stemmed the bleeding, it's time to update America's definition of what makes for a minimally decent life. "Basic health coverage and nine to ten bucks an hour!" would be my rallying cry. Of course, the conservative view of the decent minimum sounds different: "You're lucky to be in America; you're lucky to have a job; you're lucky to have the emergency room." It's true that millions around the world would give anything to be our working poor or to have U.S. emergency rooms for primary care. But this pinched vision isn't good enough for a country that should be the standard-setter for the possibilities of capitalism-especially when we can achieve a more decent life in ways that are economically rational and don't kill growth.
How? We can "define decency up" in ways that don't place the full burden of achieving America's decent minimum on business at a cost of roughly a penny on the national dollar. That amount-1% of GDP, or roughly $110 billion a year-is enough to fund tax credits (or vouchers) for basic health coverage for the uninsured as well as supplements to the wage subsidies for the working poor that are now conferred via the earned income tax credit. If the minimum wage were raised to $7 an hour (its level, in real terms, in the 1970s) and then indexed thereafter to inflation, such subsidies would ensure a living wage of at least $9 an hour. After the dust cleared, the federal government would still be smaller than it was under Ronald Reagan, when it consumed 22% of GDP.
There! Now if all that seems roughly reasonable to you, there's only one question: Why isn't such a package even part of the debate? Republicans won't budge on tax cuts. Democrats won't deal on spending. And there's no pragmatic constituency clamoring for commonsense answers. That's the big difference between business and politics-in business, pretending to solve major problems is not considered a viable option. In politics it is. If you've ever wondered whether there's a limit to the number of hoaxes a country can tolerate from its political class before screaming "Enough!" you may just get your answer in the next few years.