Saturday, January 30, 2010

President Obama, Jobs, Retirement and the Budget

A modest proposal

President Obama has recently stated that 'jobs creation' is now his number one priority. The President has also stated that he would like to see Americans save more for their retirement and that he would like to close the gaps in the Federal budget. (The US Government is currently running a deficit close to 12% which is the same as Greece's, who many are putting on the "bancrupcy-watch", albiet Greece's debt is much higher as a percentage of their economy than the USA's and this only because Greece has been running the large deficit longer).

So Workers of the World has a modest proposal to accomplish all of the President's goals for the economy.

First-off, there is no incentive, really, for people to save for their retirement as long as the government is pretending to do it for them ('pretending' because there is no social security trust fund and the program will soon too be running a deficit as more people retire relative to those still working). Goverment "social security" entitlement spending crowds-out private incentives for personal savings for retirement.

The President acknowleges that a reduction in payroll taxes is one way to create incentives for people to hire more workers (a reduction in payroll costs means that it costs less to hire workers so therefore more workers can be hired with a reduction in payroll taxes).

Finally, We know that currently Federal entitlement programs in the USA are around 10% of national income, projected (according to the Economist magazine) to be around 20% in just 5 years.

When you combine the above facts with the fact that payroll taxes for entitlement programs are the largest taxes in paychecks, and that it is entitlement programs which can't be cut from the Federal budget without reform, we see that reform (in fact, elimination) of entitlement programs can achieve all of President Obama's goals: create more private savings for retirement, reduce payroll taxes which would increase employment, and, reduce the Federal budget deficit.

Of course, these entitlements (and this includes health entitlements, also part of the payroll tax) need to be eliminated over-time so that those who have been promised, and who have had started to pay for, these unsustainable entitlements receive what they have been promised. The reform must clear and open, for example increasing the retirement age every year until it reaches 100 years of age, and, decreasing the medicaire/medicaid payments $100 per month every year for those that today start paying into the system. It is doable, and needs to be done.