Founders Perspective
Founders Perspective | Recognizing Reality…and Responding to it NOW
John Merrill, September 25, 2025
Is there anyone left in the country who still believes that we can continue the social benefit promises currently in place without change? Today, over 60% of all federal tax collections go to the major social programs including Social Security, Medicare, and Medicaid. Based on current projections, that percentage will keep rising until eventually exceeding 100%.
Those like myself that have preferred limited government and staying close to the historic percentage of government taxes have to deal with this reality (in addition to the significant increase needed in defense spending).
Either benefits must be reduced, or taxes must go up, or some combination of the two to avoid a financially destabilizing debt crisis and severe cuts to benefit programs. Either of which could easily lead to severe social unrest, even worse than that experienced in France today over these issues.
The Republican party refuses to raise taxes while the Democratic party refuses to reduce benefits. And so, despite a building crisis, we have a stalemate. While a crisis is unlikely this year, at some point ahead it will happen without major changes. A bipartisan compromise is the better course. Such a compromise was reached once before with the Greenspan Commission in 1983.
What might such a compromise look like? Here are some of the realities that would have to be addressed.
The over age 65 segment of our population was the poorest demographic group in 1960 yet is now the richest.
Those retired are growing rapidly compared to our workforce growth. This will continue for years ahead due to the advances in longevity and our below replacement birth rate.
The spread between the top 10% of wage earners and the other 90% is now the highest in history while the highest income tax rate is lower than its post WWII average.
Social Security’s annual benefit increases have risen far more than inflation over time and continue to do so.
Asset owners (homes, equities, others) have done far better than non-asset owners yet have more favorable tax treatment.
Based on these realities, the following would be among the realistic changes called for in a grand bargain.
Means-test Social Security (SS) Benefits. Reduce benefits paid to high-income recipients. (Eliminate the fiction that SS is a pension.)
Change the inflation calculation. Currently, the annual increase in Social Security is based on the average increase in prices for a certain subset (30%) of workers. Replacing it with the BLS’s “chained CPI” reflects the substitution effect of consumers switching to lower priced products when prices rise. This better reflects the inflation experienced by retirees.
Move the age for Medicare to 67 (at some point ahead). Medicare should recognize the same reality of longevity as SS. Pass legislation allowing private insurance to provide options to this age.
Reduce favorable tax breaks available mainly to the wealthy. The tax code is full of special tax incentives to the members of our society that need it least.
Eliminate carried interest rules that allow conversion of earned income to more favorable capital gains.
Return the top personal income tax bracket to 39.6% (from the current 37%). Our economy has shown it can perform well with taxes at that level.
Cap the step up in basis at death at no more than the estate tax exemption. (Eliminates the free ride on billions of capital gains avoidance.)
Cap charitable contributions to say $10m in any one year and $100m at death. The mega rich fund hundreds of billions of dollars into foundations for their interests whereas taxes are needed for the public interest, particularly to fund our obligations for social benefits, defense, and interest on the debt.
The American public will rebel against any changes to their benefits unless they are considered modest and fair compared with the changes to the wealthy.
The wealthy have done much better than the rest of the public, which accelerated after Covid. Although they already pay a disproportionately large share of taxes, their share of consumption continues to grow. This implies that their share of disposable income continues to outpace the non-wealthy even with today’s tax load.
We are moving steadily toward being an oligarchy where the “1% (or 0.1%)” controls the means of production, the distribution of incomes, and most capital investment. This is unhealthy for civil society and gives rise to the acceptance of socialist ideologies in our universities, our institutions (including foundations), and political candidates like Mamdani in NYC.
At one point, this was just the political fringe that deemed socialism an acceptable alternative. Yet this acceptance is growing rapidly among our young people—not because it has earned this acceptance anywhere it has been tried, but because of loss of faith in capitalism to share its benefits across the entire population.
In order for such a grand bargain to have staying power beyond one presidential administration, it would have to have large bipartisan majorities in both houses of congress. To achieve this, the wealthy from both parties would have to speak out in favor of it (both publicly and privately). Why would they support it? Because they are the biggest long-term losers if there is a civil or fiscal breakdown.
Of course, some provisions would need to be phased in over a period of years to allow both individuals and the economy to adjust without major disruption. In addition, the new revenues would need to be directly or indirectly applied to reduce deficit spending through budget and social benefit controls agreed to by a large bipartisan majority.
There is no doubt that most observers will contend that a grand bargain could never happen. Certainly, others have tried to craft a grand bargain and failed. But time is running out on our having control over the meaningful changes needed before unplanned and unwanted changes are forced upon us by a social and fiscal crisis.