This set of facts could be the death of a prosperous and competitive America unless we start acting to avert disaster right now.  Next week, we’ll talk about solutions.  But we’ll start today by outlining some of the reasons for this apocalyptic prognostication regarding Social Security and the history that got us where we are today.

First, our public pension program is statistically bankrupt and therefore reduces the national confidence and power necessary to remain the world’s economic and political leader. Current deficits retard our recovery from recession as the rules keep changing and businesses cautiously await clarity before increasing hiring and investing.  But today’s problems pale in comparison to what will happen in the future unless we reform Social Security.  Benefits began to be paid out as soon as the program began — that is, before contributions could be saved to fund them.  The system accordingly quickly became a “pay as you go” affair. Benefits have also been raised and widened throughout the years.  The result is a “defined benefits” retirement program that, until recently, has redefined benefits only in an upward direction and is financed off the backs of current workers. Individual benefits have precious little connection to individual contributions.

Aggravating the problem are demographics.  In 1945, there were 50 workers for every one retiree on Social Security.  In 1950, the ratio had fallen to 17.  In ten years, it fell to 8.6, and by 2025, it is expect to drop to 2.27, with a further decline to 2.1 in 2031.   Even with “full” employment, senior boomers are going to be supported by a smaller and smaller relative work force.  Something has to change.

But that something should not be raising payroll taxes again. These taxes already put us at a competitive disadvantage internationally and make it harder to reduce unemployment domestically through job creation. Raising the rates again is not a good solution for future insolvency because doing so increases the cost of labor even more without concomitant improvements in productivity.  What it really raises is unemployment.  Perhaps it takes a sustained global recession with many nations trying to solve their unemployment problems by enhancing exports to highlight these unintended consequences.  No crisis should fail to be exploited.  Let’s just hope this one doesn’t accelerate into an international trade war with battling currencies as well as quotas and tariffs.

Additionally, in all the years when revenues exceeded benefits, our government didn’t save Social Security surpluses for a future that could well be predicted to need them for boomer retirement years.  Rather, it spent these extra billions of dollars, using noxious payroll taxes to fund other government programs.  Social Security supported $99 billion of other government spending in 2009.    What did it get in exchange?  “Special issues” from the US Treasury, with both principle and interest backed thereby.  Safe?  Not necessarily, at least for individuals who have already contributed through payroll taxes and rightly should own their own shares of retirement “savings”.   The rules of eligibility and tax bases are already changing. At least the average annual interest return in 2009 was 4.860%.  That would be a nice return on private savings.  And those savings could have been secured in private nest eggs.  Many Congressional Democrats consider “privatizing social security” criminal.  That’s what we should instead call  keeping forced savings “public” and then spending them on other programs.

Social Security probably had to be run in the red at first.  After all, it was created during the Great Depression in response to the severe and unexpected suffering of seniors who’d already retired from work and lost most of their carefully built-up nest eggs because of Black Tuesday’s 12% drop in the stock market and continued declines for more than a decade thereafter.  It’s not as if retirees could rejoin the work force in response to destroyed savings:  unemployment rates were as high as 25% and didn’t fall below 14.3% until 1941.  Actual unemployment was probably even worse – much worse.  The elderly, if not yet disabled, were likely to be in that invisible pile, “discouraged workers”, who didn’t make it into the unemployment statistics because they’d given up trying to find jobs – any jobs. And we think today’s bad…

While we can approve of — and even applaud — running Social Security in the red during its early years, in no way can we honestly justify plundering Social Security surpluses to finance other government programs in later years.  With all their equity and efficiency issues (see an earlier centermovement.org post), payroll taxes are an acceptable source of revenue if and only if it’s appropriate to force individuals in the work force to save a significant percentage of their earnings for a future when they’re too old to work.  Is this kind of mandate appropriate?  Is it even Constitutional?  State challenges to Obamacare’s requirement that all individuals carry health insurance make one wonder.

In any event, the irony here is that our government forced working individuals to save, and then spent rather than saved their savings.  Until recently, economists have bemoaned how low the national rate of saving has been. More saving typically means more investment, which raises productivity and therefore growth and general prosperity.  National savings are likely as a whole to have actually decreased under this opaque system of  Social Security funds and their raidability.  It’s likely that voluntary participation in company pension plans and  contributions to 401(k)’s declined with forced participation in Social Security.

Sunk costs are sunk; the past is past – although it does inform the present.  The questions we should now be asking are how to reform Social Security or eliminate it as a public program altogether.   Perhaps there’s a better way to prevent poverty in old age.  Regardless of what the changes will be, it’s also important to figure out how to make the transitions from old to new as smoothly and equitably as possible.

One fact we should already know: the sooner the rule changes are announced and the more gradually they occur, the better off for all concerned.  We’re then given time to adjust to the new framework with whatever variables we control and decisions we can make.

Three lessons we must learn from Social Security’s history so far and keep in mind before architecting improvements.  First, perfection is beyond our reach – and even our definition. Wishing so won’t make it so. Second, the law of unintended consequences is fierce and ubiquitous.   How will behaviors change as we alter the rules of the game?  Will they offset or advance our objectives? And third, it’s not enough to have a problem in the private sector to justify involving the government.   At least Social Security has taught us this: we must first try to insure that the government has the resources, incentives and information to ameliorate the situation.

Unless we learn these lessons and have the political and personal courage to fix Social Security, and fix it soon, our whole society will join seniors in facing profound insecurity on all levels – including national defense.   A broke and broken nation cannot successfully defend itself.  And Social Security is just a baby of a problem compared to Medicare and Medicaid.  We need to cut our bipartisan teeth fixing the Social Security mess before we can address these pressing health-care problems with an American First attitude.  All sorts of issues will come to a head with upcoming debt-limit debates and decisions.  Unless this ceiling is raised, the government is likely to run out of funds by March 31.  One thing’s for sure: our government can no longer avoid tough decisions about spending cuts or tax increases by raiding Social Security surpluses.  Why?  Because the surpluses are vanishing.  There will soon be nothing left to raid.  Rather, the debt ceiling will be raised yet again, this time in part so that seniors can continue to receive their monthly checks.

Next week’s post will outline some of the ways to make Social Security secure.  They’ll range from the modest to the extreme.  Please come back, read the piece, and add your own thoughts and suggestions.  We need all the help we can get.

One of the many proper roles of law is to make at least somewhat predictable the consequences of our actions.  All of the Simpson/Bowles recommendations are accordingly unfair: they change the rules of engagement after people have made plans, adapted, and acted according to those rules .  We should accordingly endorse even the proposals we like most — or dislike least — with a certain reluctance, as well as with the understanding that there is no pain-free solution to our problems as a government and as a country.

It helps first to establish the fact that not all deficits and debts are equal.  Some are actually acceptable; others, even beneficial. The government should run deficits under two circumstances:  when government investment is high and when employment is low.

In Economics 101, undergraduates learn about macroeconomics by starting with a closed economy (no international trade) and the simple equation that C + I + G = Y.   A nation’s income (Y), it tells us, equals the sum of private–sector spending on consumption (C), private-sector spending on investment (I), and public-sector spending regardless of type (G).  In evaluating a nation’s financial health, however, it makes sense to break down government spending into the same two components of consumption and investment that deliver so much insight into where an economy is headed.

Economists like investment, and we should, too.  It’s what raises productivity.  It’s what turns inventions into innovations, fueling per-capita growth through new and improved technology.

Going into debt to finance an investment can be appropriate and praiseworthy in both the private and the public sectors.  A college graduate is living only briefly beyond her means when she gets a loan to pay for medical school: she is investing in her future, one she hopes will be financially as well as intellectually and emotionally rewarding.  On the other hand, expenditures on clothing and haute cuisine that result in debt of equal magnitude would be properly considered profligate, by parents and strangers alike.  Similarly, for the government, our response to deficit spending should vary according to whether or not assets as well as debt are being created.  Going into debt to improve long-lasting infrastructure like bridges should be evaluated for the nation just as a banker would decide whether or not a prospective homeowner qualifies for the mortgage he requests to buy some real estate.  Those who benefit from years from better transportation can pay for that convenience through years of higher gasoline taxes; families that own their homes can pay monthly mortgage bills rather than monthly rent.  Our nation’s biggest debt and deficits, as percentages of our GNP, occurred during World War II.  The Great Generation, just then emerging from the Great Depression, were sacrificing their lives and their family’s peace of mind  to save the future for us.   Should they have also paid in higher taxes to balance the budget immediately?  No.   Unequivocally no.  We are the ones who have benefited the most from a war that defeated dictators.

In times of recession, budgets that would be balanced under “full employment” generate deficits when unemployment rises about “natural” rates.*  They do so because in hard times tax revenues automatically decline along with profits and other income, while spending on unemployment compensation automatically rises.  These “automatic stabilizers” are a great tool.  They suffer from none of the lags that plague the fiscal policy of spending.  It takes too long to get tax-rate cuts through Congress in response to a recession, and even longer to approve of spending, sign contracts, and get projects going.  Robert Barro’s opinion said that “shovel ready” is one of the stupidest notions he’s ever encountered  is now endorsed, more politely, by Barrack Obama, who acknowledged there’s no such thing.  Automatic stabilizers are the part of Keynesian Economics that unabridgedly makes sense.

In sum, the requirement that all budgets be balanced is a dangerous and inappropriate goal.  A better approach to fiscal sobriety involves first analyzing government budgets by asking and answering the following two questions:

(1) Which spending is properly categorized as “investment”, and which as “consumption”?

(2) What kind of deficit would the same spending and taxing formulae yield if there were full employment?

Some “deficit hawks” push for a Constitutional amendment that would require all budgets to be “balanced”.  Simpson and Erskine don’t soar this high.  They stay aquatic in their imagery, and properly so.  The orcas we’ll study next week will all involve government spending, and we’ll use the framework we’ve just developed in deciding whether or not to harpoon them.

*Zero unemployment would be far from optimal; 4-5% is a better target.  Here’s why.  In a dynamic economy, some sectors and industries shrink while others grow — think “typewriters” and “computers”.  And many people in our advanced economy search for good jobs rather than accepting their first offers or being “underemployed” – working below their skill level, just to get a job. Unemployment benefits subsidize job search and allow individuals to be more picky — or think more long term.

Absent profound technological change in the way transactions are facilitated and great vacillation in interest rates , the demand for money grows one on one with growth in the economy. When the money supply increases too fast, equilibrium is achieved in two ways: inflation reduces its “real” value to what we want to hold or its home country gets rid of the excess by sending it abroad, importing more than it exports.

Watch out, America.  Our problems are not unlike Europe’s.  We, too, are on a course of unsustainable growth in debt and deficits.  Some of our states are in worse shape than others.

Surveys show that 55-70% of American dollars are held outside the United States.  They got there in good measure because of trade deficits — nifty exchanges of paper for real goods and services in exchange for slips of paper.  They stayed there because they were considered a decent — steady, safe — store of value.  The America dollar may look better than the euro at present, but competition from other currencies backed by the economies of countries with more sober fiscal and monetary policies and cheaper goods for exchange is on the rise.  No country can afford to live beyond its means for long, much less forever.  Currencies may just be the canaries in the coal mines, the first strong sign of trouble ahead.

One of the earliest and strongest signs that a country has lost faith in its government is tax fraud.  Nobody likes to pay taxes, but in the United States, pay we do.  The tax code and forms are too complicated for most of us, so we turn over our information to accountants and other tax specialists.  We could fail to disclose some of our income, but most of us don’t.  We have a sense of national community, and we support it.

GREECE

Things are different in Greece.  Tax evasion is rampant in this small country with its huge past.  Greece has a “shadow economy” that’s roughly a full 25% of its GDP.  This is a “cash under the table” sector that exists either to hide activities that are illegal or to avoid taxes on legally generated income.

Greece even has a special word for one popular form of tax evasion.  It’s “fakelaki”, Greek for “little envelope”.  Prices for many goods and services (including medical treatment) are significantly lower when customers stuff little payment envelopes with cash, no receipt given, no paper record of any transaction, any income.

Often times, those supposed to enforce the laws are also on the take. When fraud is uncovered, the typical solution is a three-way split: one third of the taxes owed goes to government, one third to the collector, and one third back to the pocket of the tax delinquent. Estimates indicate that some $30 billion in revenue a year is lost to tax evasion.

It’s hard to raise adequate revenue for federal governments when bribing and cheating are so widespread, and the magnitude of revenue lost through fraud at several levels explains a lot of Greece’s current and growing financial crisis.  $11.4 billion in Greek eurobonds mature on May 18.  With Greece’s poor prospects and credit ratings, it’s nearly impossible to get people in private sectors around the world to buy  $11.4 billion in new bonds at less than exorbitant yields.  But the problem is even worse.  Greece is running government deficits of almost 13% of its GDP, so it needs to issue new debt as well as replace old.   And over the next five years, many more bonds come due.

How did Greece get to this place? Hard to say. Some blame Greece’s troubled past, replete with invasion and foreign domination.  Greece was part of the Byzantine Empire from 1456 to 1929, and during these centuries under Turkish rule, Greeks developed a culture of seeing the government as the enemy “other”. They chuckle over avoiding taxes even as they worry about a new kind of foreign intervention: financial invasion.  A recent poll reveals that more than half of the populace says “aid” from the IMF makes countries worse, not better off.  But Greece is likely to have no better choice than gracefully accepting bailouts from the IMF as well as the EU this month.  Strings will assuredly be attached.

UNITED STATES

While Greece has been a modern democracy for less than a century, America is the oldest continuous democracy in the world, a “new” country with an “old” government.  Europeans settled in a land with a very low number of people per acre.  How they treated the population who got here first is lamentable.  But the vast preponderance of Americans either live in a country whose government their ancestors created or immigrated here by choice, in hopes of a better future because of a vibrant economy backed by significant rights and therefore opportunities supported by law.

As America’s population grows and diversifies, the sense of community is harder to support.  This development alone would lessen confidence in government and the willingness to pay its bills through taxes.  But people are also increasingly distrustful of politicians and not just the level of government spending but also its components.  They don’t like the way things are decided and done in Washington.

The Pew Research Center for People and the Press reports the findings of one of its recent surveys concisely and vividly as follows: “a perfect storm of conditions associated with distrust of government – a dismal economy, an unhappy public, bitter partisan-based backlash, and epic discontent with Congress and elected officials.”  Only 22% of those polled said they trust the federal government “almost always or most of the time.”  Only 19% say they are “basically content” with what goes on in D.C.

It’s hard to get people to accept their tax bills when they don’t like where the money is going. The “Tea Party” chose its name for its historical resonance: the rebellion in Boston over taxes imposed without representation.  It’s a growing movement based on discontent.  Who among us feel honestly represented by our own government now?

America already has a “shadow” or “underground” economy filled with individuals who break the law. Just as in Greece, some of the activities in the shadows are illegal transactions like the marijuana and heroin trade.  The rest is legal business hidden from the eyes of the IRS.  Examples include housekeeping, babysitting, tips for various services, lawn care,  and home care for the sick and elderly.  As in Greece, the employer may be offered two prices: one for documented and reported income and the other for cash under the table.

Our shadow economy is already estimated at 7.8% of GDP, though how we can accurately calculate the hidden beggars the imagination.  Bringing  it to light would broaden our revenue base and help reduce our deficits.  But whatever its real current level, expect it to grow as people lose their confidence in government, and with it, their sense of collective and national responsibility for people outside their immediate neighborhoods and family.

Washington appears to be responding to all this discontent with a legal form of bribery.  Its politicians vote to increase spending for the special interests that got them elected.  The result is deficit spending on course to make us another Greece – but one too big to bail out.

America’s most valuable asset is not our technology or our natural resources.  It is the combination of our legal system, our faith in it, and how the two shape our national character.  We have been a people who believe in the value of honest hard work because we believe in the future and the framework our government provides to help us get there safely, fairly, and somewhat predictably.

Greece’s problems teach us the perils of debts and deficits.  More importantly, they should teach us the perils of loss of trust in government as a whole and the disrespect for the law that inevitably follows.

Without law and law-abiding citizens, property rights are minimal or non-existent, and without strong property rights there are neither markets to organize people’s actions nor individual incentives to postpone today’s pleasures for tomorrow’s returns. Economic growth is the best way to solve our problems of deficits and debts while also supporting programs we believe in as a community. Growth requires saving and investing, and saving and investing require belief in a secure future.

Take note, Americans in and out of government.  Look around you and at the polls. We’re losing trust in government, and not just because of unbalanced budgets.  We no longer, as a majority, believe it represents us truly and fairly.  We come to think that the worst special interests are those of elected politicians with debts to their contributors. With growing mistrust of government, we also lose confidence in components of the private sector as well – particularly those big contributors to politicians who then bend policy to support their private ambitions at our expense.  We lose optimism about our own future, and even more in the futures of our children and grandchildren.

We need systematic reform now, while we still have the time to do it thoughtfully and well.  Pretty soon the average Joe and Jill are going to begin to think on these lines: “If people in government and business are all cheating, then why shouldn’t we cheat too?”  Then it will be too late.

MINIMUM WAGES
In May of 2007, during the Bush 43 Administration, Congress passed legislation that raised America’s hourly minimum wage in three stages from $5.15 to $7.25 – an increase of 41% in slightly over two years. The stated purpose of minimum-wage requirements is laudable: it’s to give every worker a living wage.

“How nice,” good-hearted readers may respond; “it’s hard enough to get by on $7.25 an hour, but making due with $5.15 is nearly impossible these days.  And imagine trying to feed yourself, much less clothe and shelter yourself, if some fat-cat boss could get away with paying you even less!”  They’re right.  And low-skilled individuals who keep their jobs are decidedly better off with the higher minimum wages.

The problem is the unintended consequences.  Not everyone gets to keep his or her job when the rules change.  Because the government cannot force private enterprises to hire new workers or continue employing existing labor when the cost of doing so goes up, raising the minimum wage prices people with unexceptional skills out of the market.  For all their good intentions, minimum wages accordingly create more unemployment and more poverty for society as a whole.

The third increase in the minimal wage, the one that raised the rate from $6.55 to $7.25, took effect in July of 2009.  The timing was terrible.  In the midst of high and rising unemployment, and halfway through a year where cost-of-living indices actually declined, we made old jobs and new hires even less affordable to companies that were already losing sales and cutting back their workforces.

It’s much harder to get by with $0.00 an hour than with a market-determined wage.  But the consequences for the future may be even worse than the poverty of the present. When the starting wage gets too high, not only do some workers get laid off, but others can’t even join the workforce in the first place.  Their entry-level job skills simply aren’t worth $7.25/hour.  Educating one’s way out of poverty occurs just as much in the office as it does in the classroom.  When people fail to find employment, they don’t just lose wage income today, they also lose the on-the-job training that makes future advancement to better jobs possible – all this on top of the destructive effect unemployment has on existing skills and attitude.

This problem is particularly acute for individuals seeking their first jobs. The Wall Street Journal’s lead editorial on March 5 is entitled “The Lost Wages of Youth” and has some stern and startling unemployment statistics for teenagers in general and teenagers of color in particular. The situation is so bad that the Journal condemns in no uncertain terms going through with last summer’s last step in 2007’s three-stage wage legislation:

To raise the cost of unskilled labor precisely when the jobless rate is heading towards 10% is an act of almost willful economic stupidity.  A Congress that has spent $862 billion to create jobs thus managed to harm tens of thousands of entry-level job seekers.  And it did so in the name of “compassion” and a “living wage.”

The WSJ could have said much more.  Because it’s a national standard, the wage floor is even more destructive for teenagers in parts of the country with low costs of living than the averages indicate for the United States as a whole.  Teenagers living in rural Mississippi, for example, have a much harder time finding employment when the starting wage is $7.25 than their counterparts in Anchorage, Alaska, where the cost of living is so high that the minimum wage may be below market rates and therefore irrelevant.  Mississippi itself suffers even more than loss of employment and associated production.  It also loses some of the competitive advantage it would otherwise gain from lower labor costs.  In a sense, minimum-wage legislation is a subsidy to the pricier states and cities in our nation.

PAYROLL TAXES
The Wall Street Journal also could have, and should have, extended its critique to payroll taxes and the disincentives they add to an already ugly picture of market distortion and unintended consequences.  The omission is surprising for a newspaper of its conservative nature and caliber.  Each of the five taxes has a raison  d’etre, but none of the benefits at this time is worth the associated costs.

All wages up to a ceiling of $106,800 are taxed to “fund” Social Security and Medicare.  The idea is to “smooth” consumption and make people “save” for the days when they’re too old or too sick to work.  But the revenues are not in fact saved, and they aggravate unemployment and poverty issues.

Employers pay half these payroll taxes themselves and withhold the other half from the checks they cut for their employees’ take-home pay.  When markets set wages, it’s highly likely that companies shift some of their payroll-tax burden to their employees by reducing their pre-tax wages.  When workers are paid minimum wage, none of this shifting is possible.  While shifting at first glance seems morally opprobrious, it’s a heckuva lot less heinous than firing.

Social Security payroll tax rates are currently 6.2% for both employer and employee, and Medicare adds another 1.45% to both sides.  The $106,800 ceiling is irrelevant for minimum-wage workers, and there’s no exemption for low incomes.  The result is to increase employers’ hourly-wage cost for each of their lowest-skilled workers to more than $7.80, while reducing take-home pay initially to less than $6.70.

Fortunately, low-paid employees with a certain savvy can file an Earned Income Credit (EIC) form with the IRS and, depending on their income and number of dependents, restore part, if not most, all or even more than all, of their gross earned income.  (Sometimes they can even get more money from the government than was withheld from their paychecks.)  Unfortunately, there’s no such program to reduce taxes on the employers’ side, where heightened labor costs continue to cause layoffs and deter job creation.

Add to this business burden Workmen’s Comp taxes, paid by employers, with rates based on how many previously employed workers have filed for injury claims. Keep going with Federal and State Unemployment Tax Acts (FUTA and SUTA).  FUTA levies another 6.2% employer tax on the first $7000 each employee earned. Although much of this “unemployment insurance funding” can be offset by a refund if paid in a timely fashion, it still remains regressive because of the salary ceilings. And isn’t it ironic in all times, but particularly these, that companies creating  and maintaining employment are also penalized through payroll taxes that make them fund unemployment programs?

Could there be more obvious deterrents to new hires in precarious economic times than the chaotic array of legislation we’ve now discussed?  Actually, yes: continuing to make health insurance a required, regressive, and tax-subsidized perk of employment for businesses over a certain size.  But that’s step three in addressing economic reforms to reduce unemployment, deficits and debt, and the purview of another piece.

CONCLUSION
Minimum-wage legislation is an abomination for society as a whole.  While it benefits some low-skilled workers, it does so at the expense of the even more vulnerable, whose poverty it only deepens.  Minimum wages should be abolished.

Five different payroll taxes add to the damage.  They further discourage employment, and for some workers they also take away sizeable chunks of incomes that are already perilously low.  The good-hearted readers who – at least initially – applauded the concept of the “living wage” as achieved through minimum-wage legislation should now rise up in outrage over policies that take money back from those who keep their jobs but either don’t qualify for full refunds through EIC or don’t know enough to file.  Payroll taxes should be suspended for both sides, at all wage levels, at least while unemployment rates are so high.

The goals for all six of these wage and tax policies are admirable.  But the best of intentions often create the worst of programs.  They do so because of unintended consequences.  They do so because we cannot overturn the laws of economics, we can only work with them.

The best way to help poor people is to help them help themselves.  We should reform formal education so that everyone can read, write, and think.  We should encourage employment not only for the earned income but for the on-the-job education that leads to better jobs.  And we should ease the transition to a living wage.  For those of us who believe in the ability of poor people to make decisions on their own and to learn from their mistakes, the best transitional tool is the negative income tax.  For those of us who prefer to protect them and guide their choices,  vouchers are the way to go.  Minimum wages and payroll taxes are getting in the way for both sides.

The problem that holds back reform is that we must also work with the laws of politics.  Unions, for example, love minimum wages: they keep some nonunion labor competition at bay.  And the majority of politicians in power today – the Democrats — are deeply indebted to unions.  How else to explain the government bailout-takeovers of Chrysler and General Motors?

If there is ever a time when we can overcome the political power of vested interests and eliminate minimum-wage laws and suspend payroll taxes, that time is now. Rates of unemployment that all of us find ethically and economically unacceptable demand solutions, and alternative approaches are not working well. A lot of the “stimulus” programs have yet to be implemented, well over a year into recession.  For those that have, it looks as if each job “saved” has cost six-figure sums of added deficits.  These results are appalling at all times, but particularly when soaring deficits and debt undermine confidence and credit ratings.

Eliminating minimum-wage laws is fast and free.  Suspending payroll taxes is a quicker, more equitable, and arguably much cheaper approach to reducing unemployment than the government spending the Administration has endorsed and pursued so far.  And let’s be clear: EIC has already nullified, reduced or reversed half of the biggest payroll taxes — those associated with Social Security and Medicare — for many with low income.  Let’s give the same break to businesses for all of the payroll taxes they pay.  Suspension would have to be fairly long term to generate results, and it also provides an opening wedge to eliminating these highly regressive taxes altogether.

For a man who admires speed, pledges fiscal sobriety, and talks the populist line as much as President Obama now does, the obstacles to these suggested reform are political, not economic. Each government program, whether it be taxing, spending or regulating, creates its own protective constituency. If our President can bring to Washington the change we once believed in, we can emerge from recession in better – stronger, more equitable – shape than ever before.  The time to act, Mr. President, is now.