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I was going to write about the effect of Social Security "reform" on my generation -- the late Baby Boomers with little in common of our far more numerous forebears, which I learned here years ago had been given the appellation "Generation Jones" -- the first targets of the rise in the age of "retirement" (or more properly, of retirement benefits.  That was so depressing that I decided to give you something better: donuts.  Yummy, yummy donuts.  Tax-level donuts.

(Don't worry.  That's a metaphor.)

The donut-related tax-related measure with which readers are probably most familiar is the much-hated "donut hole," more accurately known as the Medicare Part D coverage gap, which was eliminated as part of PPACA, the Obamacare bill.  This pertained to the provision of reimbursements for pharmaceuticals under the "Medicare Part D" bill that Republicans gifted to pharmaceutical companies (and to a lesser extent seniors) during the Bush the Lesser Administration.

I'll describe how the Donut Hole worked, why it was hated, and what it has to do with Social Security below.  Here's a hint: this diary is not about policy.  A diary by DFA's Arshad Hasan on Tuesday. "Why Now is the Time to End the Social Security Tax Loophole" (which I encourage you to read before going on with this one, if you don't mind too much!) handled the policy portion of "what to do about Social Security" just fine.

The problem, as usual, is about politics.  For the most part, we know what we should do.  The trick is how to make it happen.  This diary proposes such a trick.  The same thing that made Medicare Part D such a political loser, if inverted, can make our position on Social Security reform a political winner.

OK, let's start with a chart (revised from Wikipedia, whence I got the numbers):

How much you paid for prescription meds under Medicare Part D, how much Medicare paid -- and why people HATED the Donut Hole.
Here's how it worked:

First row: the first $295 you spent on prescriptions drugs in a given year were entirely your responsibility.

Second row: the next $2405 -- meaning a running total of $2700, or $225 per month --that you spent on drugs were reimbursed at a 75% rate.  So, if you spent exactly $2700, you ended up paying only $896.25 of that total -- just a few bucks short of 1/3.

And then ... you fell into a hole and maybe died.

I suppose that I should be more specific.

Third row: what happened as soon as you reached $2700 in spending is ... nothing.  A whole lot of nothing.  You got no reimbursement for your next $3454 in spending -- that about $288 per month -- for a running total of $6154, or $513 per month.  You were now paying $4350.25 out of the first $6154 you spent in prescription drugs, almost 71% of that amount -- rather than just over 33%.

Fourth (and fifth) rows: if you lived through this, and I do mean "if," then you were reimbursed for 95% of your prescription drug expenses.  If your drug expenses were $1500 per month -- not all that hard to achieve, especially for the elderly -- for a grand total of $18,000 per year, you'd end up paying a bit less of a percentage overall than someone who had paid only $2700.  The "hole" during which the government would not pay for any portion of your drugs was -- the donut hole.

People HATED this donut hole.  HATED IT.  Hated and feared it.  It really tells you something about psychology that people just wanted to stay out of the freakin' donut hole if they could.  All across the political spectrum, people wanted to get rid of it.

With Obamacare, they did.

What does this have to do with Social Security, other than that both deal with the elderly?  Simple: one can also run this trick in reverse -- and it might well be really popular.

Here's how it would work.  We can build nice little donuts -- Social Security tax holidays during which you pay no SSDI tax -- into the Social Security payroll tax.  These isn't "forgiveness" based on particular days, but on income level: once you reach a certain plateau, your next portion of Social Security is free.  It's like getting one's card stamped at a sandwich shop.

We can even gear it towards the middle-class!  We could have brief "holidays" each spanning $1000 of income at the $40,000, $60,000, $80,000, 100,000, $120,000, $140,000, $160,000, and $180,000 thresholds.  People would not be charged Social Security payroll tax on the 40,001st through 41,000th dollar of income.  (Maybe we could even make it $2000 ... or $3000!  I haven't run the numbers; at minimum, we want this to be revenue neutral.  It's just the basic idea that counts for now -- and that it would probably be political popular.)

(Would this make it difficult to calculate payroll taxes?  No -- we have computers!)

Now, of course, giving away $53 per person (or whatever) eight times over the course of a their first $180,000 plus of income would be popular with much of the public largely because -- like many of the favorite conservative tax cuts -- it would be fiscally irresponsible.  (See, politics is pretty easy!)

Well, that's not quite true!  Rather, it would be fiscally irresponsible if that were all we did in our reform!  It wouldn't be, though.  We'd also be implementing Arshad Hasaan wrote about yesterday: raising the cap on the Social Security tax.  (He called it "closing the Social Security Tax Loophole," which is nice framing -- if it works.)

In other words, under Arshad's plan, which is a better plan than mine in every way but one, you'd pay Social Security tax on every dollar you earn -- just as you do with Medicare.  That's responsible policy!  But I'm afraid that it seems like medicine.  It seems like "yet another liberal tax increase."  Establishment media tells everyone to groan!  And, unfortunately -- as a result it probably doesn't happen.

How, those of you who remember Mary Poppins, do we make the medicine go down?  That's right, with a spoonful of sugar!  Or, in this case, "donuts."

Those tax holidays you see up there?  They are sweet.  They are donuts.  Yummy.

Arshad's plan extends the 100% solvency of Social Security from 25 years to 75 years.  Mine -- well, I'd be happy to jigger the figures so that it extended it to only 35-40 years.  Then, if we had to chop off the eighth donut, or shrink the tax holiday in a given donut, to squeeze another 5 years into the projections -- we could do that!  That would be a much smaller and more tolerable change than what Arshad proposes -- and therefore probably more politically feasible.  The benefits of the tax cut are spread wide; the costs are narrowly focused on those who could best afford it.  Politics!  Heh!

Think about how this would work.  If you're making $63,000 per year, you come out ahead under this plan over what we have now!  You just bagged a couple of donuts!  If you make $103,000, you bagged a couple more!  Woo-hoo!  It's not until you get to $140,000 in income that you start feeling the net effect of higher payroll taxes chewing up those early donuts at all.  But that's OK -- enough people are up above that level (and much higher) to make this at least revenue neutral and more.  And if my back-of the envelope projections are wrong, then maybe we can afford to give people only six donuts -- or four.  (Surely at least ONE!)

Politically, let's see how the public reacts to the wealthy saying that most of the public shouldn't have their little donuts, because they the wealthy need a diet of nothing but donuts instead!  It's like the "Bush tax cuts" standoff we just had last year.  Offering a broad tax cut like those first couple of donuts puts pressure on Republicans to explain why they can pay a higher share of their upper income so that most of us could pay a little less.  Let them try!

Now, if Arshad's plan can pass as is -- that's fine!  In that case, mine isn't necessary.  But if it's getting blocked, I hope that one of the Democratic Caucus will consider proposing a "donut plan" reform.  People might love the Social Security donuts in much the same way that they hated the Medicare Part D donut hole.

I'm thinking that I might be able to convince Sen. Al Franken to propose it -- because seeing how the Republicans responded to it sure would be funny.

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