How the U.S. Can Prevent a Debt Spiral
By William A. Galston, Feb. 21, 2023, WSJ

The U.S. is in this sorry state for three main reasons: Democrats spend money when they don’t raise taxes; Republicans cut taxes when they don’t cut spending; and the aging population exerts steady upward pressure on spending for Social Security and
Medicare.

Here’s what I’d do to prevent the debt spiral. First, stop the bleeding by agreeing to prevent the debt-to-GDP ratio from increasing over the next decade. This would mean reducing the projected $22 trillion debt accumulation by about $7.5 trillion
during this period.

Second, put everything on the table. If Republicans continue to insist that tax increases are off the table while Democrats proclaim that Social Security and Medicare are untouchable, negotiations won’t go anywhere.

Third, establish some guiding principles. Mine are simple: Do no harm to low-income and working-class families; do not allow the burdens on upper-income households to be lighter than for those further down; and, within these constraints, orient the
federal budget to maximize the rate of economic growth that can be sustained over time.

Take Social Security. My principles would imply first that individuals who earned at or below the median income during their working lives shouldn’t face a cut. Second, there should be no structural changes—such as increasing the retirement age—
that would have a disproportionate effect on low- and moderate-income earners. Third, higher-income earners should not pay Social Security taxes at a lower effective rate than those earning less. Right now, individuals making $150,000 pay about $9,300
annually in Social Security taxes, an effective rate of 6.2%. Those making $400,000 pay about $9,900, an effective rate of 2.5%.

Instituting a Social Security flat tax that applies the same rate to income at every level would go a long way toward stabilizing the program for the long term, and benefit cuts limited to upper-income recipients could finish the job. A stabilized system
would give businesses what they need most to grow—a stable, predictable set of rules that enables them to plan and invest for the future.

https://www.wsj.com/articles/how-the-us-can-prevent-a-debt-spiral-social-security-effective-rate-flat-interest-rate-spending-e9d41697

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