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I was going to write about the effect of Social Security "reform" on my generation -- the late Baby Boomers with little in common of our far more numerous forebears, which I learned here years ago had been given the appellation "Generation Jones" -- the first targets of the rise in the age of "retirement" (or more properly, of retirement benefits.  That was so depressing that I decided to give you something better: donuts.  Yummy, yummy donuts.  Tax-level donuts.

(Don't worry.  That's a metaphor.)

The donut-related tax-related measure with which readers are probably most familiar is the much-hated "donut hole," more accurately known as the Medicare Part D coverage gap, which was eliminated as part of PPACA, the Obamacare bill.  This pertained to the provision of reimbursements for pharmaceuticals under the "Medicare Part D" bill that Republicans gifted to pharmaceutical companies (and to a lesser extent seniors) during the Bush the Lesser Administration.

I'll describe how the Donut Hole worked, why it was hated, and what it has to do with Social Security below.  Here's a hint: this diary is not about policy.  A diary by DFA's Arshad Hasan on Tuesday. "Why Now is the Time to End the Social Security Tax Loophole" (which I encourage you to read before going on with this one, if you don't mind too much!) handled the policy portion of "what to do about Social Security" just fine.

The problem, as usual, is about politics.  For the most part, we know what we should do.  The trick is how to make it happen.  This diary proposes such a trick.  The same thing that made Medicare Part D such a political loser, if inverted, can make our position on Social Security reform a political winner.

OK, let's start with a chart (revised from Wikipedia, whence I got the numbers):

How much you paid for prescription meds under Medicare Part D, how much Medicare paid -- and why people HATED the Donut Hole.
Here's how it worked:

First row: the first $295 you spent on prescriptions drugs in a given year were entirely your responsibility.

Second row: the next $2405 -- meaning a running total of $2700, or $225 per month --that you spent on drugs were reimbursed at a 75% rate.  So, if you spent exactly $2700, you ended up paying only $896.25 of that total -- just a few bucks short of 1/3.

And then ... you fell into a hole and maybe died.

I suppose that I should be more specific.

Third row: what happened as soon as you reached $2700 in spending is ... nothing.  A whole lot of nothing.  You got no reimbursement for your next $3454 in spending -- that about $288 per month -- for a running total of $6154, or $513 per month.  You were now paying $4350.25 out of the first $6154 you spent in prescription drugs, almost 71% of that amount -- rather than just over 33%.

Fourth (and fifth) rows: if you lived through this, and I do mean "if," then you were reimbursed for 95% of your prescription drug expenses.  If your drug expenses were $1500 per month -- not all that hard to achieve, especially for the elderly -- for a grand total of $18,000 per year, you'd end up paying a bit less of a percentage overall than someone who had paid only $2700.  The "hole" during which the government would not pay for any portion of your drugs was -- the donut hole.

People HATED this donut hole.  HATED IT.  Hated and feared it.  It really tells you something about psychology that people just wanted to stay out of the freakin' donut hole if they could.  All across the political spectrum, people wanted to get rid of it.

With Obamacare, they did.

What does this have to do with Social Security, other than that both deal with the elderly?  Simple: one can also run this trick in reverse -- and it might well be really popular.

Here's how it would work.  We can build nice little donuts -- Social Security tax holidays during which you pay no SSDI tax -- into the Social Security payroll tax.  These isn't "forgiveness" based on particular days, but on income level: once you reach a certain plateau, your next portion of Social Security is free.  It's like getting one's card stamped at a sandwich shop.

We can even gear it towards the middle-class!  We could have brief "holidays" each spanning $1000 of income at the $40,000, $60,000, $80,000, 100,000, $120,000, $140,000, $160,000, and $180,000 thresholds.  People would not be charged Social Security payroll tax on the 40,001st through 41,000th dollar of income.  (Maybe we could even make it $2000 ... or $3000!  I haven't run the numbers; at minimum, we want this to be revenue neutral.  It's just the basic idea that counts for now -- and that it would probably be political popular.)

(Would this make it difficult to calculate payroll taxes?  No -- we have computers!)

Now, of course, giving away $53 per person (or whatever) eight times over the course of a their first $180,000 plus of income would be popular with much of the public largely because -- like many of the favorite conservative tax cuts -- it would be fiscally irresponsible.  (See, politics is pretty easy!)

Well, that's not quite true!  Rather, it would be fiscally irresponsible if that were all we did in our reform!  It wouldn't be, though.  We'd also be implementing Arshad Hasaan wrote about yesterday: raising the cap on the Social Security tax.  (He called it "closing the Social Security Tax Loophole," which is nice framing -- if it works.)

In other words, under Arshad's plan, which is a better plan than mine in every way but one, you'd pay Social Security tax on every dollar you earn -- just as you do with Medicare.  That's responsible policy!  But I'm afraid that it seems like medicine.  It seems like "yet another liberal tax increase."  Establishment media tells everyone to groan!  And, unfortunately -- as a result it probably doesn't happen.

How, those of you who remember Mary Poppins, do we make the medicine go down?  That's right, with a spoonful of sugar!  Or, in this case, "donuts."

Those tax holidays you see up there?  They are sweet.  They are donuts.  Yummy.

Arshad's plan extends the 100% solvency of Social Security from 25 years to 75 years.  Mine -- well, I'd be happy to jigger the figures so that it extended it to only 35-40 years.  Then, if we had to chop off the eighth donut, or shrink the tax holiday in a given donut, to squeeze another 5 years into the projections -- we could do that!  That would be a much smaller and more tolerable change than what Arshad proposes -- and therefore probably more politically feasible.  The benefits of the tax cut are spread wide; the costs are narrowly focused on those who could best afford it.  Politics!  Heh!

Think about how this would work.  If you're making $63,000 per year, you come out ahead under this plan over what we have now!  You just bagged a couple of donuts!  If you make $103,000, you bagged a couple more!  Woo-hoo!  It's not until you get to $140,000 in income that you start feeling the net effect of higher payroll taxes chewing up those early donuts at all.  But that's OK -- enough people are up above that level (and much higher) to make this at least revenue neutral and more.  And if my back-of the envelope projections are wrong, then maybe we can afford to give people only six donuts -- or four.  (Surely at least ONE!)

Politically, let's see how the public reacts to the wealthy saying that most of the public shouldn't have their little donuts, because they the wealthy need a diet of nothing but donuts instead!  It's like the "Bush tax cuts" standoff we just had last year.  Offering a broad tax cut like those first couple of donuts puts pressure on Republicans to explain why they can pay a higher share of their upper income so that most of us could pay a little less.  Let them try!

Now, if Arshad's plan can pass as is -- that's fine!  In that case, mine isn't necessary.  But if it's getting blocked, I hope that one of the Democratic Caucus will consider proposing a "donut plan" reform.  People might love the Social Security donuts in much the same way that they hated the Medicare Part D donut hole.

I'm thinking that I might be able to convince Sen. Al Franken to propose it -- because seeing how the Republicans responded to it sure would be funny.

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Comment Preferences

  •  Tip Jar (19+ / 0-)

    Plaintiffs' Employment Law Attorney (harassment, discrimination, retaliation, whistleblowing, wage & hour, &c.) in North Orange County, CA.

    "I love this goddamn country, and we're going to take it back."
    -- Saul Alinsky

    by Seneca Doane on Thu Mar 28, 2013 at 03:00:12 PM PDT

  •  It really is a discussion about lives is isn't it? (5+ / 0-)

    All of this is about life and trust, or the lack thereof.

    I too like the framing about "Closing the Social Security Loophole" and wonder why more in D.C. are scared to talk about it?

    Then again, I wonder why we can't just pay for what most people say they want and are willing to pay higher taxes for?

    "There is nothing more dreadful than the habit of doubt. Doubt separates people. It is a poison that disintegrates friendships and breaks up pleasant relations. It is a thorn that irritates and hurts; it is a sword that kills.".. Buddha

    by sebastianguy99 on Thu Mar 28, 2013 at 03:09:42 PM PDT

  •  Has to include income other than payroll like.... (2+ / 0-)
    Recommended by:
    Seneca Doane, joanneleon

    Capital Gains, Carried Interest, and all the other 1 per centers tax dodges. But I like where this would go.

    Plato's " The Cave" taught me to question reality.

    by CTDemoFarmer on Thu Mar 28, 2013 at 03:27:06 PM PDT

    •  Do you really want to insure unearned income? (1+ / 0-)
      Recommended by:
      Seneca Doane

      That's quite a divergence from the concept of Social Security.

      How would you feel if someone thought SS a good place to park his/her money? Or would you guarantee it is never a good investment for ... who? Everybody?

      Do you think SS wage insurance is a good investment for YOU?

      Too late for the simple life, too early for android love slaves - Savio

      by Clem Yeobright on Thu Mar 28, 2013 at 04:29:29 PM PDT

      [ Parent ]

  •  Sure beats a lottery (2+ / 0-)
    Recommended by:
    joanneleon, Seneca Doane

    because my SSN would NEVER win a lottery.

    I hope you'll get this into AF's hands lickety-split so he can teach himself to draw the chart free-hand on a white board while scarcely looking at it - just as he does with the U.S. map. Now THAT will drive the Rs to (more) drink!

    Too late for the simple life, too early for android love slaves - Savio

    by Clem Yeobright on Thu Mar 28, 2013 at 03:40:02 PM PDT

  •  BTW: Have you seen THIS re 'scrap the cap'? (2+ / 0-)
    Recommended by:
    joanneleon, Seneca Doane

    Too late for the simple life, too early for android love slaves - Savio

    by Clem Yeobright on Thu Mar 28, 2013 at 03:41:55 PM PDT

    •  I hadn't! (1+ / 0-)
      Recommended by:
      Clem Yeobright

      Not exactly a casual read, but looks informative.  What's the takeaway?

      By the way, I (no joke) originally read your comment header as "scare the crap," so I had expected to find something a bit different!  Like, with more pictures!

      Plaintiffs' Employment Law Attorney (harassment, discrimination, retaliation, whistleblowing, wage & hour, &c.) in North Orange County, CA.

      "I love this goddamn country, and we're going to take it back."
      -- Saul Alinsky

      by Seneca Doane on Thu Mar 28, 2013 at 04:37:01 PM PDT

      [ Parent ]

      •  I'm still reading it (1+ / 0-)
        Recommended by:
        Seneca Doane

        but one interesting variable in the equation is the number of spouses who would be better off taking their spousal benefits instead of their own if the cap goes way up (or off). Apparently, in many couples one member is earning $150k or more while the other makes $80k; come retirement time, each takes his/her own - at least until the higher earner dies when the survivor gets the higher benefit for life. With no cap, the lower-earner is likely to find 50% of the higher-earner's benefit the better deal. From which ... why bother working at all and building your own piddling pool?

        Proceeding from that - not sure if the article covers it - is the effect on ex-spouses. If your wife from 20 years ago is drawing $10k a month, your own $3k looks pretty puny against the $5k you can draw on her account ... if, of course, you divorce your current wife, maybe just living in sin - with the govt subsidizing that at $2k a month?

        It looks like a complicated issue that 'Bright Shiny Object' thinking is not optimal for analyzing ...

        Too late for the simple life, too early for android love slaves - Savio

        by Clem Yeobright on Thu Mar 28, 2013 at 04:51:28 PM PDT

        [ Parent ]

        •  Interesting (1+ / 0-)
          Recommended by:
          Clem Yeobright

          Well, for now, let's experiment!  Maybe just implement at extra taxon income over $500,000 per year.  Maybe stop it at $600,000?

          Is the maximum Social Security benefit really $10,000 per month?  I thought that benefits were capped.  Is that a pure function of the income cap?

          Plaintiffs' Employment Law Attorney (harassment, discrimination, retaliation, whistleblowing, wage & hour, &c.) in North Orange County, CA.

          "I love this goddamn country, and we're going to take it back."
          -- Saul Alinsky

          by Seneca Doane on Thu Mar 28, 2013 at 05:55:22 PM PDT

          [ Parent ]

          •  Benefits are capped by the contributions cap (1+ / 0-)
            Recommended by:
            Seneca Doane

            Delay your retirement until 70, report max earnings for 35 years, and you can get about $3200 a month - plus $1600 for your wife, of course, if she's old enough. That's today's maximum.

            But when the cap goes, $10k a month (plus $5 for the spouse) will be common. (About $800k a year - in 2012 dollars - for 35 years does the trick, I think.)

            I worry that seeing some couple getting $15k per month - a couple with probably better health and higher life expectancy than you and your spouse - will erode popular support for SS, but not many other people here see that as a problem. Or they say the SS promise (contributions -> benefits) should be abrogated, either with means testing or just cynical manipulation of the formula. (One person suggests a penny of benefits per thousand dollars of contributions, because that'll teach the fuckers tee hee.)

            I think SS can stand on its own as wage insurance as originally intended. It's a good deal.

            The motto of the blog-a-thon is: Hands off my SS.

            That's why I'm following it.

            Too late for the simple life, too early for android love slaves - Savio

            by Clem Yeobright on Thu Mar 28, 2013 at 06:15:37 PM PDT

            [ Parent ]

  •  Thanks so much (2+ / 0-)
    Recommended by:
    Clem Yeobright, Seneca Doane

    for contributing to the blogathon, Seneca!

    "HandsOffMySS" Blogathon: March 25th thru March 29th, 2013
    Diary Schedule - All Times Eastern Standard


    Social security is a concept enshrined in Article 22 of the Universal Declaration of Human Rights which states that Everyone, as a member of society, has the right to social security.

    A limited form of the Social Security program began, during President Franklin D. Roosevelt's first term, as a measure to implement "social insurance" during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50 percent.

    Let your voice be heard.

    Members of the Daily Kos group Social Security Defenders have organized this bogathon to promote the truth about the financial condition of the Social Security trust fund, and the impacts of various so called reforms and fixes.

    Understanding how benefits are calculated, the History of Social Security, where the Wisconsin Idea came from, and how over the years changes have been made to Social Security, all increase awareness and hopefully improve the discussion.

    • Monday, March 25th

    11:00am:Roger Fox
    1:00 pm: Joan McCarter
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    • Tuesday, March 26th

    10:00 am: Roger Fox
    11:00am: joanneleon
    1:00 pm: joe shikspack
    3:00 pm: Arshad Hasan DFA
    5:00 pm: Roger Fox

    • Wednesday, March 27th

    1:00 pm: teacherken
    3:00 pm: priceman
    5:00 pm: Bruce Webb

    • Thursday, March 28th

    10:00 am:Roger Fox
    11:00am: Jim Dean DFA
    2:00 pm: BernardPliers
    3:00 pm: One Pissed Off Liberal
    5:00 pm: floridagal
    6:00pm: Senaca Doane
    • Friday, March 29th

    11:00 am: Economist Dean Baker
    1:00 pm: VCLib
    3:00 pm: Armando
    5:00 pm: Liberal Thinking

    Please remember to republish these diaries to your Daily Kos Groups.  You can also follow all postings by clicking this link for the Social Security Defenders Blogathon Group. Then, click 'Follow' and that will make all postings show up in 'My Stream' of your Daily Kos page.


    "Justice is a commodity"

    by joanneleon on Thu Mar 28, 2013 at 04:18:24 PM PDT

  •  One small data quibble (2+ / 0-)
    Recommended by:
    Clem Yeobright, Seneca Doane

    The later baby boomers are more numerous than the early ones:

    Age pyramid 2012

    The last yer of the Baby boom is 1964, so the tail end is 49 this year.

    And I like your donut idea, although I think it might be a challenge to implement.

    We can safely abandon the doctrine of the eighties, namely that the rich were not working because they had too little money, the poor because they had too much. JK Galbraith, 1991

    by Urban Owl on Thu Mar 28, 2013 at 07:04:49 PM PDT

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