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If we want to shrink the federal government budget deficit, lower inflation and fix Social Security, there’s a simple solution: We need to nudge folks to stay in the workforce for longer.
The more people who work, the more goods and services the economy will produce. That means demand is less likely to outstrip supply, pushing consumer prices higher. It should also mean more income and payroll taxes, helping to fund government programs.
By contrast, the solutions for inflation and government deficits that are usually discussed—raising income taxes, cutting government spending, trimming Social Security benefits, increasing payroll taxes—all involve taking money away from Americans. This too could “fix” inflation and government deficits. But the result would be that some folks will be forced to cut their standard of living and that, in turn, will likely slow economic growth.
Wouldn’t it be a whole lot less painful to grow our way out of our economic problems?
The price, of course, is that some folks will need to stay in the workforce for longer. But one way or another, that’s likely where we’re headed. If inflation spikes, or Social Security gets cut, or tax rates rise, some folks will decide they can’t afford to retire and others will conclude they need to return to the workforce.
That brings me to a point I’ve made before: A lot of problems that are seen as financial problems—rising consumer prices, the dwindling Social Security trust fund, ballooning government deficits—are really demographic problems. We’re reaching the point where there are too few workers and too many Americans dependent on their labor, and we need to rectify the balance.
We could do this the hard way by, say, slashing Social Security and forcing retirees back into the workforce. Or we could do it the smart way, which is to create incentives for folks to keep working and for employers to retain these employees. That way, the seniors who want to keep working will continue to do so—and those who want to retire, or who are no longer able to work, can quit.
So, here’s my question for HumbleDollar readers: What should Washington do to make it more appealing for older Americans to keep working and for employers to keep these folks on their payroll? Should there be, say, tax cuts aimed at those age 60 and up with earned income? Should there be special tax breaks for employers who have older Americans on their books? Let’s hear your best ideas.
A great premise, and yes, a challenge to implement with intent. Agreed that cutting SS benefits is essentially a political non-starter, so let’s start by taking that off the table. Seniors are to some degree already being “forced” to continue working as a consequence of the current economy and inflation; I can only think this continues further as the downstream impacts of the transition from defined benefit programs such as pensions are replaced by retirees with underfunded 401(k) plans. But government can aid that momentum by incentivizing expanding the demand for workers, and further restricting the ability of companies to bypass hiring of American workers. While obvious, the rising tide of a growing economy powered by workers, vs. the capital gains from tech and intellectual property, will not only help the SS situation but put the US on a sturdier economic footing.
It seems, that living in the USA of 330M individuals we want a simple answer to a complicated problem. I admit I planned to work until 70 and could have easily accomplished that except I was let go in a downsizing at the age of 66. Not a good time to start looking for a 6 figure job. So I retired and fortunately like most of us here that was financially viable. But when it comes to working longer I would like to discuss two individuals that arguably have the most important and stressful jobs ever imagined. I will call them Joe Biden and Donald Trump. Both were in their 70’s on taking on that very important job and we do not need to discuss their capabilities to do so but rather I would like to see what other job I would have liked to see them employed at. Would anyone here be thrilled to see either one in the cockpit on a flight you were about to take? How about showing up at a robbery with a gun in hand yelling Stop! Police? I shutter at the thought of running out of my burning house to have them show up with water hose in hand. Not sure what the thought would be if they showed up to start a roof replacement on my two-story house. We could raise the mandatory retirement age of the military to 65 and force them to stay that long to earn retirement. I suspect most of us lived lives in cushy mid-management or executive jobs sitting at our desks all day long in an air-conditioned building.
I do think whatever Medicare or Social Security we have it should be very clear at the start of ones career to lay out the rules of the game and then never allow them to make changes for those that are in the game but only for new entrants into the game. Not a fan of any rules being changed once I am a player in that game. Once you know the rules and start the game – I would fully expect winners and losers. It is hard to make everyone a winner so not surprised there are whiners.
Incentives to work longer will help, but does not address the total issue. We need improved financial literacy. An education of reading, writing and arithmetic is a starting point. We also have various ways to learn marketable skills, such as coding, the construction trades, or teaching. But we do not teach financial literacy.
Working longer does not mean you will have better financial success. The concept of living within your means is difficult without tools and training. Working longer will not improve savings rates, retirement planning, risk management and basic financial transactions.
Loosen the restrictions on Health Savings Accounts.