Our Roads and Bridges are the Responsibility of Our State Community

Our Legislators Don’t Understand the Role of Our State Government

Our state legislature is having a hard time agreeing on a budget this year, especially when it comes to paying for and roads and bridges. One legislator says he won’t vote for the budget unless it eliminates the requirement to pay the prevailing wage for workers who work on road projects. Another legislator says that we should eliminate bonding as a means of paying for our roads. Our governor says that that he won’t agree to raise the gasoline tax or the vehicle registration fee.

All of these positions stem from a doctrinaire belief that the most important thing for our state to do is to lower taxes. People who hold this belief refuse to see that our state government has an important role in providing an environment in which all of us can thrive and that we must all share in its cost. Our roads and bridges make it possible for us to get to work. They make it possible for our factories to ship their products to markets all over the world. They make it possible for tourists from Chicago to spend their money in northern Wisconsin. We all know that our transportation network could never be built and maintained by the private sector alone. Much of the work is done by private contractors, but the planning and funding comes from the state.

All of Us Benefit and All of Us Should Pay

As a community we all benefit from our roads and bridges, and so it is only fair that we should pay for them as a community through our taxes. We have done so for many years through the gas tax.  However, the gas tax at its current level is no longer sufficient to pay for our community’s roads and bridges, and so we have to reconsider the way we pay for them. We can find a way if we recognize that our state government is not something imposed on us. It is the means by which we act together to accomplish things like building roads that we cannot accomplish as individuals.

The Tax Burden Should be Apportioned Fairly

We should also accept that the cost of our roads and bridges should be apportioned as fairly as possible.  Apportioning the cost fairly means that those who use the roads the most should pay the most. To do this, we can increase the gas tax, or we can move to a tax based on mileage.  I favor the latter because such a tax would fall equally on drivers of electric cars and drivers of gas-powered cars. We could also increase the registration fee. We should not solve our problem by eliminating the “prevailing wage” rule in order to reduce the wages of the workers who build and maintain our roads. That would be unfair because it would not apportion the majority of the cost to those who receive the majority of the benefits.

Apportioning the cost fairly also means that future users of our roads and bridges should bear a part of their cost.  It makes no sense to pay the whole cost in one year when the benefits will be spread over decades. So, we should use bonding to pay for roads and bridges. However, we should not use it as a substitute for raising taxes. We current users have to pay our share, too, and in addition, if we are going to borrow more money, we will need more tax revenue to pay our debt. We can pay for our roads and bridges in a sensible way if we stop focusing on reducing taxes and recognize that if our state community needs roads and bridges, we must pay for them with state taxes. Once we accept that principle, we will be able to focus on apportioning the cost in the fairest possible way.

Social Security: Fairness, Community and Sustainability

Social Security Must Be Reformed

Social Security must be reformed. As the system is now constituted, it is not financially sustainable because it pays out more than it takes in. If nothing is done, beneficiaries will face cuts in their benefits as soon as 2033.  What can we do to put Social Security on a firm footing and meet the commitments we have made?

We Do Not Duck Our Responsibilities

We have to find a way because we are not people who would duck our responsibility to care for the old people among us. We will not abandon the people who nurtured us and worked hard to build the world in which we live.  Some people in our society can earn and save enough on their own to provide a comfortable old age, but not everyone earns enough to do so, and it would be wrong for us to abandon them in their time of need. So, we need Social Security.

We Recognize that Social Security Benefits Are Earned

Moreover, we have a responsibility to fix Social Security in a way that preserves the benefits that people have worked for. We have to do this because Social Security benefits are earned.  They are contractual. They are not charitable contributions. A worker and his/her employers pay into Social Security throughout his/her working life. An individual’s “account” may be seen as a combination of a savings account (the worker’s share) and deferred compensation (the employer’s share), and people who have worked hard all of their lives have a right to the benefits they have earned. If we cannot pay those benefits because we have allowed the system to fail, we will have cheated them, and our American community cannot be based on cheating.

We Must Be Financially Realistic

On the other hand, we have to be realistic because Social Security benefits are paid in the real world with real money. We cannot promise benefits that we cannot pay, and we have to recognize that, as things now stand, we will not be able to meet our commitments indefinitely.

To solve this problem, there are only two things we can do:

1.       We can increase the program’s revenue.

2.       We can modify the benefit formula to reduce the program’s benefits.

A Possible Solution

There are many ways for us to increase revenue or to reduce benefits, and to test out various possibilities, I used “The Reformer: an Interactive Tool to Fix Social Security,” which is on the web site of the Committee for a Responsible Federal Budget. This interactive tool allowed me to try various alternative “fixes” both individually and in combination to see what it would take to fix Social Security in a way that was financially realistic while honoring our responsibilities to be honest with our workers and to care for the old people among us. The tool allowed me to try increasing the Social Security tax or decreasing the benefits, and as I did so, I had to face the moral question behind each choice? Who should pay higher taxes to increase Social Security’s revenue?  Whose benefits should be decreased? Should everyone pay higher taxes, or should the increases be concentrated on those with high incomes? Should everyone’s benefits be reduced or only the benefits of the rich? Should we use our money to pay benefits only to those who really need them, or should we pay benefits to everyone who has earned them?

Here are choices that I made among the alternatives that the web site gave me, and these choices would make Social Security solvent for 75 years and beyond. I started with revenue increases because our responsibility to meet our contractual commitments requires us to avoid reducing earned benefits when we can.

                                               Increases in Social Security’s Revenue

Type of Revenue Increase	Percent of the Shortfall Closed in the 75th Year
Increase the payroll tax by 1.4% (The site allowed me to choose the amount. At the median US income of about $50,000, a worker would pay an additional $700/year.)	50%
Subject all wages to the payroll tax. (Today, only wages up $118,500 are taxed. The cut-off point rises with inflation.)	71%
Cover newly-hired state and local workers. (Today, state and local governments can opt out of Social Security.)	6%
Increase the taxation of benefits (Today only a portion of Social Security benefits are taxed.)	8%
Diversify the investments in the Trust Fund to increase returns (This means investing in the stock market.)	19%

The first two items listed would make Social Security solvent for the next 75 years, and it was tempting to stop there, but with only these two changes, there would still be a gap after 75 years, which meant that Social Security would not be fully solvent. So, I added the remaining three revenue-increasing items. Unfortunately, they still did not fully close the funding gap beyond the 75^th year. In order to make the program fully solvent, I turned to modifications of the benefit formula. Here are the choices I made.

                                          Modifications of the Benefit Formula

Type of Modification	Percent of the Shortfall Closed in the 75th Year
Slow initial benefit growth for the top 20% of earners (This affects the formula by which a person’s initial benefits are calculated.)	3%
Modify Cost of Living Adjustments by indexing COLAs to the chained CPI	20%

      Taken together, these revenue increases and modifications of the benefit formula would completely close the funding gap and would make Social Security safe indefinitely, but they are all politically controversial.  Radical rightists are generally opposed to tax increases, while progressives generally oppose reductions in benefits, but the truth is that, without using both approaches, we cannot make Social Security fully solvent while meeting our moral responsibilities to care for the old and to honor our contractual commitments.[1]  The fact that our commitments are contractual means that we have to be honest with our workers about what they will receive. Promising benefits that we cannot pay would be equivalent to promising the workers a salary that we could not pay. If we did that, we would be guilty of fraud.

My first choice in benefit cuts was in line with our current practice. Today, we “bend the curve” in benefit calculations to avoid paying very large benefits to a few people and to be able to pay a minimum benefit to the very poor. The need to bend the curve will increase if we tax all wages because otherwise, a few people who earned very high incomes during their working years, would receive outlandishly high benefits. A more extreme version of this approach would be to “means test” Social Security benefits and deny them entirely to people with retirement incomes above a certain level, but doing that would change Social Security from an earned benefit program to a welfare program, and that would be a mistake.

My second choice in benefit cuts was to use the “chained CPI” to calculate annual cost-of-living increases. This has recently been controversial, but it is the least bad of the alternatives presented on the interactive website, and I could not make Social Security fully solvent beyond the 75^th year without some reduction in the cost-of-living increases. So, I chose this one on the principle that we should not make promises that we cannot keep. People need to know what they can depend on and what they need to provide for themselves. 

In making my choices for increasing revenue and reducing benefits, I tried to apportion the costs fairly. The tax increase of 1.4% would be shared by everyone, but collecting Social Security taxes on all wages would affect only those with high incomes. On the benefit side, slowing the increase in the initial benefit for the top 20% of earners would affect only those with high incomes, but using the chained CPI would affect everyone.

Diversifying the trust fund’s investment portfolio was an easy choice because it caused no one to pay higher taxes or to lose benefits, but it is politically controversial because it would convert the Social Security Trust Fund into the largest stockholder in many companies, and that would be a big change in the structure of our economy. However, most state pension funds invest in the stock market, and they receive higher returns than those received by the Social Security Trust Fund. Wisconsin’s pension fund provides a successful example of an honest, well-managed, fully funded application of this approach.

The choices I have listed represent my attempt to put Social Security on a firm financial footing while recognizing that we are a community that recognizes its responsibility to care for its members who are old, and that we are a community that respects contractual commitments and does not renege on its promises. I invite my readers to try their own, alternative solutions.

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[1] Actually, there is a way to achieve what we want without reducing benefits, but it would require a major change in the structure of Social Security: we would have collect Social Security taxes on non-wage income like interest, dividends or capital gains. However, that would be beyond the scope of this discussion, which is about the things we can do within the structure of the program that we have.