Solving the Funding Squeeze

Clearly, the scope for new government spending is limited in the years immediately ahead. As we shall show, however, it is possible to reallocate current revenues, so they are spent more wisely. We can also generate new revenue for much-needed social investments.

As we will discuss in Chapter 6, we found during our deliberations that one approach to financing the government's cost of meeting our agenda stood out as fair and sensible: The panel recommends that Social Security benefits exceeding an individual's lifetime contribution be subject to taxation. Such a step does not impose a "means test" on receiving Social Security. Rather, it permits all senior citizens to receive benefits, but recaptures a portion of benefits from higher-income people to help meet our nation's social welfare needs.

We do not view the full taxation of Social Security benefits as "hitting the elderly." It is a tax we will all pay one day when we become elderly. In other words, the elderly are not some group to be segmented and separated from the rest of us—they are us. Viewed from this perspective, the tax represents a way that we all can contribute to filling unmet social needs once we are in a position to pay it.

Furthermore, the panel feels strongly that the additional revenues generated by this taxation should be placed in a special fund, at least for a period of time, to be used to underwrite a portion of the cost of achieving a broad spectrum of social welfare goals. Eventually, we hope, we would not have to protect this fund but could treat it exactly like other revenue flowing into the Old Age and Survivors' Insurance (oasi) Trust Fund. During the next decade or two, however, as we reduce the "social deficit" described in this report, we must ensure that the new revenues match up directly with unmet needs across the age spectrum. In the short run at least, we see this as a sensible way to link the demand for taking action on the social deficit with the response to that demand.