Tuesday, August 05, 2008

Don’t think of a big drill: acknowledging real pain with real solutions

My answer to the gas price question: fix Social Security! (Not that it’s broken, mind you.)

Much has been written in the last couple of weeks about McCain’s nonsensical “solution” to high gasoline prices—offshore drilling—and many a brow has been furrowed because it seems that Democrats have yet to synthesize as pat an answer to the real hardship brought on by $4/gallon gas.

Even I, a solid opponent of off-shore drilling, subsidies to big oil, and even, truth be told, cheap hydrocarbon fuel, have been saying for many months now that first, the Democrats need a good answer for questions about rising fuel costs, second, the Democrats don’t seem to have one, and third, this is going to be a persistent problem in this election cycle.

Though Senator Barack Obama has recently made a comprehensive speech that makes many a good point about the failed energy policies of Bush/McCain, and includes some intriguing proposals that might help stimulate an alternative energy economy in the United States, he has also muddied his message with the much more sound-bitable statement that he would be open to some forms of off-shore oil exploration. The idea that Obama envisions an America that does not need nearly as much oil has not made headlines, but, alas, the story that Obama has “softened” his stance on drilling to move closer to McCain—be it true or not—has.

The establishment media, with the help of big advertising dollars from big oil, seems eager to award this point to the Republicans, and Democratic standard-bearer has still not fed the beast a definitive answer about how he will lower gas prices.

Obama does not have an answer—and that is because there isn’t one (hard-to-explain arguments for a windfall profits tax notwithstanding). To talk about high gas prices strictly within the oil frame, or even within the energy frame, is playing on the Republican’s turf, and, after much brow-furrowing of my own, I believe that is a pitch on which we cannot score.

We will likely never see $2 per gallon gas again, nor would we want to (for may reasons involving consumption, conservation, pollution, ecology, economy, innovation, etc.). That said, it is hard to ignore the real pain that many Americans feel every time they pull up to the pump. How can Democrats respond to that pain?

The problem comes amidst so much economic upheaval, it is impossible to address in a vacuum—so how about we don’t? Rather than feel crippled by what the Republicans have wrought, let us seize this opportunity to set several things right. For, if handled correctly, this could present the country with the all-too-rare win-win-win scenario.

First up, we can’t make gas cost less, but we can give you more money to spend on it. To put it a slightly different way, government can’t do much to make gasoline cheaper right now, but it can immediately make its cost use up a smaller percentage of a working family’s budget.

Second, we will provide immediate and meaningful economic stimulus across the board—to every working American—but we will give most of that money to the people most likely to spend that money within the US economy.

Third, we give a substantial and permanent tax cut to the vast majority of Americans.

And, as a bonus “win,” fourth, we will “fix” Social Security (again, not that it’s really broken, but we can actually increase the size of the Social Security trust fund without cutting benefits—at all).

Here is how I propose we accomplish all of these lofty and presumably laudable goals:

1) Immediately eliminate the Social Security portion of the FICA tax on all income below the poverty line (currently pegged at about $10,400 for an individual).

2) Beginning January 1, 2009, eliminate the cap (currently set at $97,500) on the Social Security portion of FICA—completely—and

3) Also at the beginning of 2009, cut the Social Security FICA rate almost in half, to an employee contribution of 3.2% (from the current 6.2%).

And now for the large caveat: I am not an economist. However, I think I have read enough and thought about this enough to assert that my proposal will work.

Remember, roughly 80% of Americans pay more in payroll taxes than they do in income taxes, so a cut in the FICA will put more money in more pockets than any income tax rebate. And, because this is money withheld from weekly paychecks, it will put it back into the hands of workers almost immediately upon making this plan law—no waiting for some post-tax-day check when the stimulus is needed right now.

Those benefiting from the new FICA floor—and that would be almost everyone—could choose to use that money to help offset increased fuel prices. It would in most cases mean much more than any summer gas-tax holiday, and certainly more than the non-existent payoff from increased offshore drilling. That said, those that have discovered during the current crisis that they can get by using less gas/diesel/oil can use the additional income they would receive however they see fit (it is, as Republicans like to say, your money).

Come January, those making less than $97,500—and remember, that is 94% of Americans—will see another tax cut. This should provide another boost to economies—both personal and national—that will likely still need it.

And, for the bonus round:

With a flat rate and a cap, FICA is one of the most regressive taxes we have. This plan goes part of the way towards restoring a small amount of tax equity while still cutting taxes for the great majority of workers.

And, as for the Social Security trust fund, this is the part where I would welcome the input of experts. Here’s what I understand: that upper 6% of Americans, the ones that make more than $97,500, earn roughly 40% of the nation’s pay. Yes, the first ninety-seven-five for each of these workers falls under FICA’s cap, but a large portion of those incomes contribute not at all to the Social Security system. By eliminating the cap, so much extra revenue would become available to the fund that a cut of even more than 3% is probably feasible, but I wanted to actually increase the size of the trust, so I erred in that direction. How much would this affect the solvency of Social Security? This is where my limited modeling skills start to fail me—if someone out there can provide some numbers or additional options, I would be much obliged.

It is my belief that the additional 3.2% tax on income north of $97,500 would present a minor burden to most in that fortunate bracket, and since something like 80% of Americans think the rich should pay more into Social Security, and since 94% of us would see a tax cut, I think that this is a tax plan that we could actually sell to the voters.

I do not mean this plan to supplant the proposals to stimulate the economy by rebuilding and repairing our nation’s infrastructure, nor do I want to see this idea stop us from talking about creating the new green, post-hydrocarbon, carbon neutral economy as a way to more permanently reinvigorating the US economy. However, I want to turn the conversation away from the Republican-driven one of to-drill-or-not-to-drill toward a discussion of how a responsible government (a government responsible to its citizens and not the oil industry) can help ease the consumer pain caused by a generation of Republican energy policy.

I’d like to think that my proposal, or some refinement of it down the line, helps achieve that goal.

(cross-posted on The Seminal and Daily Kos)

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