A math problem

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Social Security and Medicare entitlements jointly referred to as FICA, continue to be debated with considerable lack of perspective. Social Security is funded with 6.2% payroll tax which employer’s match and Medicare with a flat 1.45%. The average beneficiary receives about $15,000 annually. For the bottom 40% this entitlement is almost 90% of their annual income.

Many politicians like Paul Ryan propose slashing entitlement spending. Contrary to conservative rhetoric, privatizing Social Security and converting Medicare to a voucher program while packaging it as choice remains a tough sell. Americans want choice in their life, but at a certain age what they need is security.

Total federal expenditures are 24% of GDP. Spending is largely (33.5%) Social Security and Medicare, (20%) Defense. Contrasted with federal taxation, which is historically low at 15.5% of GDP, this leaves about a 9% deficit. We need to close this gap to a sustainable 3% by tweaking entitlements and reducing a bloated $650 billion dollar defense budget.

Conservatives refuse to increase revenues on top earners, basing their opposition on hurting the “job creators.” However, if lowering tax rates were the answer and led to more job creation we would be drowning in jobs. The sensible approach to entitlements is not slashing programs but adjusting expenditures; increasing contributions on Social Security very gradually. A worker earning $50,000 would see an increase of his tax by 1/20th of 1% annually for 20 years, about 50 cents per week, matched by the employer. This would close the Social Security gap by 50%. Additionally, income of $113,700 and above is currently exempt from contributing. If this gap were eliminated or at least raised, revenue would increase about 0.6% of GDP. Coincidently, the same amount required for Social Security solvency.

We don’t have a spending problem we have a math problem.

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