Back to American Independence

Alan Greenspan’s recent call to reform Social Security and Medicare is the perfect opportunity for this nation to resurrect the idea of the independent economic individual that characterized American citizenship between the Founding and the early twentieth century. That period’s guiding principles were individual responsibility and self-reliance, along with equality of opportunity. The Progressive Era started the turn toward demanding social justice from government, later expanded through New Deal and Great Society entitlements, of which Social Security and Medicare are the crown jewels. Today, ironically, a renewed independence ethic will have to replace the entitlement ethic in order to make those programs sustainable.

During the late twentieth century, expectations by every individual of benefits that in prior ages had been available only to a few of the very wealthy—retirement for a period of up to twenty-five years, and the best available healthcare throughout life (at a time when life expectancy is being extended to more than ninety years)—became democratic ideals. This expectation in turn created a dependency on government (through taxes) or business—someone else with wealth—to furnish much of the means of achieving those ideals.

Even for the middle class, independence has come to mean principally living in ever-larger homes and, often, single-parent families; driving more and bigger vehicles; having the latest electronics; eating out or prepared meals more often; incurring debt rather than saving; and, driven by a celebrity culture, giving children lifestyles and goods that only wealthy adults had in earlier generations. The same can be said for senior citizens, who have become America’s wealthiest age group but still feel entitled to dependency on government and younger generations.

Who is to pay the rapidly escalating costs of this perceived entitlement to retirement and healthcare, and how? Payroll taxes, which were supposed to cover these entitlements, have already been raised thirty times to an all-time high. Raising them to a sufficient level to cover the cost of those entitlements would bankrupt the working class. The bottom half of households essentially no longer pay federal income taxes (they pay less than 4 percent). Political grants of government support—tax credits and income subsidies—continue to move up the middle-class income scale.

Approximately 85 percent of income taxes are now paid by households with incomes over $75,000, the top quintile (20.8 percent) of the population. Taxing the “rich” increasingly comes down to an argument about which households earning above $75,000 should pay more, and at what rates. We are becoming a two-class society—those who pay most of the taxes and those who pay very few taxes. Is that a practicable or desirable kind of future democratic society?

A better alternative is to engender a new ethic of independence within at least the middle class—including seniors—to resolve our entitlement crisis. Reform of Social Security should preserve a basic safety net for everyone, but permit voluntary savings so that individuals can seek to become independent in retirement. All other healthcare, including Medicare, should be based on mandatory enrollment by every citizen and legal immigrant in new federal or state government programs (no longer employer-based) that provide access to limited, affordable benefits. Such basic health insurance should provide catastrophic coverage as a safety net. Individuals should be responsible to pay directly for more routine healthcare costs—to be independent stewards rather than dependent.

This approach to healthcare addresses both the problem of the uninsured and the growing role of the contingent worker (independent, temporary, and part-time) in our economy, expected to become 50 percent of the civilian labor force by 2010. Already half our young people without college degrees—generations X and Y—are contingent workers.

Individuals and employers or other institutions or groups should continue to be free to purchase, or offer and furnish, any other type and extent of healthcare coverage. But whatever a corporation or other organization (government, college, union) pays to benefit a member should be fully taxable income to the member (or retired member). Consistent with the principle of “equal opportunity for all, special privileges for none,” tax incentives or income subsidies given should be provided directly and only to each and every individual.

American business should also be required to adopt the independence ethic. Corporate welfare—government subsidies, spending, and tax breaks for specific industries and companies, usually to the largest corporations that erase more jobs than they create—should be ended. This could yield $125 billion per year to fund individual safety nets.

Reform of both Social Security and Medicare as called for by Mr. Greenspan should be founded on the independent economic individual and equality of opportunity. All of our people—including the senior- citizen voting block—need to adopt that ethos to create a sustainable and fair future society.

Opinions expressed do not necessarily reflect those of the Hudson Institute.