The real solution to Social Security, Medicare and the national debt

In addition to saving Social Security and Medicare, the long-term U.S. national debt crisis is also solvable. Every good businessman knows that in tough economic times it is necessary to reduce wasteful spending, but do so without cutting quality of product. At the same time, it is necessary to mobilize all sources of credit and income. In government, this means reducing waste, protecting important social benefits and generating equitable tax income. But is American tax practice equitable? Realizing early in the 20th century that some of the boys in the school yard were amassing most of the marbles, the United States adopted a “graduated” income tax system with higher rates for those in higher brackets. Any such system can always be gamed, when the fox takes charge of the hen house. In practice, most of the wealthiest Americans are not paying anything like their fair share in federal and state income taxes. Today, wealthy Americans supposedly pay a top bracket tax rate of 35 percent. That in itself is a low rate compared with the 91 percent bracket rate of the golden years of Eisenhower and Kennedy. But in fact, practically no one actually pays 35 percent. To explore this reality, one recent study of a collection of the “super wealthy,” defined as billionaires earning millions of dollars each year, concluded that on average the billionaires paid an “effective” tax rate of only 0.7 percent. By comparison, the average blue collar worker, who actually works, paid 14 percent, which is 20 times the rate paid by the average billionaire (0.7 x 20 equals 14 percent).The simple solution to this inequity, even without rewriting the U.S. tax code, would be to adopt a “minimum effective tax rate” of say 5 percent on all income and capital gains, equally applicable to all but the poorest Americans. (This should not be confused with the existing “alternative minimum tax.”) Whatever one’s deductions, depletions, exemptions and so forth, no one would ever pay less than the flat 5 percent. Thus, instead of paying only 0.7 percent, the super wealthy would pay at least 5 percent (still less than half the rate for the average working man, but a move in the right direction). This would possibly yield some $400 to $500 billion in additional tax revenues each year, putting an end to the debate over the national debt ceiling, as well as discussion of the need to cut cherished social benefits. Problem solved.In spite of the above solution to the debt crisis, the U.S. tax code still needs rewriting. It is packed with questionable tax breaks for the wealthiest Americans, corporations and special interests. For example, do petroleum corporations still need special subsidies? Recently, attention has rightly been paid to tax breaks for privately owned jet aircraft. Thanks to the U.S. Supreme Court, the line between corporations and “persons” has been blurred — at the expense of actual people. Wealthy individuals can reinvent themselves as “S corporations” to gain tax advantages they cannot get as people. Money is “free speech,” even when it’s actually a bribe.It is said that U.S. corporations face the world’s highest tax rates. The argument is specious since U.S. corporations do not in fact pay anything like those rates, and many pay no tax at all. Yes, we need our corporations. But there is no evident correlation between tax breaks for corporations or the wealthy and the creation of jobs in America. Recent trends in employment suggest the reverse. The more you provide excessive tax breaks to corporations like General Electric, the more they may reward you by downsizing the work force. In the last two decades, the “global market” trend in outsourcing industrial capacity, technology and jobs to foreign countries has demonstrated a shocking pattern of disloyalty to this country. Many senior corporate executives are parasitic on their own companies, at the expense of shareholders, employees and customers. Yet they complain all the way to the bank. Outside the tax code and in contravention of its intent, thousands of American individuals and corporations maintain accounts and fake offices in foreign tax havens, such as the Cayman Islands, for the sole purpose of tax evasion. We have to rewrite not just the tax code but also our criminal laws to make sure that these tax evasion practices are criminalized, prosecuted and punished. If we can get our hands on this veritable hemorrhage of taxable resources, imagine what this can do for the solvency of our nation. It should be win-win twice over. Problem doubly solved.In sum, the alleged crisis of Social Security, Medicare and the national debt is a mirage, brought on by refusal to recognize the actual facts and by refusal to consider even the most obvious solutions based on American values and principles, and sense of democratic fairness, social responsibility, and, yes, patriotism. To save the nation, we are not asking the super wealthy to “share in the sacrifice.” That’s too grandiose. We are simply asking the super wealthy to pay a portion of their fair share. We are asking them to behave more like loyal Americans. Sharon resident Anthony Piel is a former director and general legal counsel of the World Health Organization.