Safehaven | Economic Problems Solved In a Comprehensive Strategy

December 21, 2004

Economic Problems Solved In a Comprehensive Strategy
by Charles Meek

The administration has a great opportunity to, in one fell swoop, solve

(a) the deficit problem

(b) the Social Security problem, and

The solution is so simple and so obvious, it will surely be missed. It will be missed because nobody in Washington can put three seemingly unrelated issues together in the same package (unless there is pork involved). But this is the key to success—a package deal.

Here's the concept:

Freeze federal spending at current levels for every department except defense for as long as it takes to get the budget back in balance. No exceptions. Note that this does not mean that federal workers' pay cannot go up. It just means that each department has to figure out where to conserve so that they spend no more in total each year hence.
Cut Social Security payments for those who do not need it. Social Security was originally designed to be a safety net for the truly needy. So perhaps, only the bottom half or bottom quarter of Americans would receive Social Security. Everybody would continue to pay into the system as they do now, but only those who find themselves in retirement at the low end of the income spectrum would receive full benefits.
Institute a true flat income tax, with perhaps deductions only for charitable contributions. No gimmicks. No baloney. Ideally there would be a constitutional amendment process begun at the same time to prohibit the federal government from ever taking more than 20% of any portion of any citizen's income in federal income tax.

This plan ought to be politically feasible in that the rich would get a lower tax rate but would give up Social Security retirement income benefits. That should be a fair trade-off.

The plan would have to be scaled in over several years to protect people who have made reliances on the current system.

From an investment standpoint, this would be a boon to stocks, bonds, and the dollar. The economy would become more productive. Government would become more responsive and responsible.

Regards,

Charles Meek
MeekMarketModels.com

Mr. Meek is a Registered Investment Advisor and editor of MeekMarketModels.com.

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