There was good news last Friday. On the strength of a strong jobs report, the unemployment rate fell to the lowest level in five years. From all appearances it seems like the economy is getting stronger. However, growth is slow, and there are millions who are still out of work. Deficits are dropping, but Social Security and Medicare, while OK for now, will run out of money down the road.
Fixing the economy is not an easy task. Dealing with “entitlement programs” is even more difficult. Yet, there are three things that Congress could do before their un-deserved Christmas vacation that would go along way towards fixing the economy as well as Social Security and Medicare. These solutions are not hard, and Americans support all of them by huge majorities according to polls.
The minimum wage, adjusted for inflation, is at the level it was when Truman was president. To keep pace with the minimum wage in 1968 when it peaked, it would need to be $12 an hour. To keep place with increased productivity, it should be $21 an hour. Right now, it is $7.25 an hour.
If the minimum wage were raised three major things would happen. First of all it would lift millions of people who work full time out of poverty. It would allow many of these families to pay federal tax, which they do not earn enough money now to owe federal tax. This would increase revenues to the federal treasury.
On top of that, most of these workers with minimum wage now qualify for federally funded programs like SNAP, Medicaid, and the Earned Income Tax Credit and other programs. This costs other taxpayers $243 billion dollars a year. What that amounts to is welfare for corporations because their profits and stock prices are higher because they do not pay their workers a living wage. Instead, taxpayers pick up the tab.
The third benefit to the economy by raising the minimum wage is that that additional money will go back into the economy. These workers will spend most of their increase on food, clothing, rent, tuition, gasoline or other necessities. This will increase revenues for those businesses who will in turn hire more workers and the net result is an increase in GDP. And the deficit would decrease by that $243 billion a year.
Raise cap on Social Security and graduate Medicare premiums
The second thing that will help both the economy and the so-called “entitlement” programs is to raise the cap on income that is taxed for Social Security and adjust Medicare premiums for upper income taxpayers. If incomes up to $250,000 were taxed for Social Security, it would make the Trust Fund solvent for decades, if not longer. If some of that increased revenue were distributed to recipients in the form of a modest benefit increase, it would stimulate the economy because most of that raise would be spent.
Just as with the minimum wage, that would increase revenues for businesses leading to more jobs and in turn, more federal tax dollars. This will reduce the deficit by growth, not cuts or higher taxes.
If Medicare premiums were graduated on higher income taxpayers, it would make Medicare solvent without cutting benefits on anyone.
Do No Harm
The third thing Congress can do is “no harm.” They need to pass a long-term budget and raise the debt ceiling so that for the next two years, Americans will be spared the uncertainty that these budget and debt ceiling debacles cause. If Americans, businesses, and investors knew that we had a period of 24 months of stability, businesses would expand and investors would invest.
One more way of doing no harm is to extend unemployment benefits for the long-term unemployed. If those benefits are cut, it will drain money out of the economy starting Dec. 28th, reduce consumer spending, and decrease federal tax revenues. Extending these until the first two suggested fixes take hold will protect the economy from harm.
These are simple things that could be done before Christmas. Unfortunately, the GOP controlled House will take none of these up except possibly a Budget, but that is still in doubt. We can dream, however, of what Christmas could be this year if we only had a functioning Congress.