Tuesday, July 05, 2005

Sorry You Asked?

Brad DeLong avoids the virtue of simplicity:

Josh Marshall asks a question:

Which turns out to be; what kind of Social Security system would we design if we were starting from scratch in 2005.

Unfortunately, Professor Delong methinks too much:

The system we would design would have substantial prefunding because our current national savings rate is very low and our economic growth rate is not high enough to make pay-as-you-go clearly the best option. The system we would design would have a Social Security-like "defined benefit" component because people really value a retirement income component not heavily subject to market vicissitudes, and the government is the only organization that can offer such a "defined benefit" plan. The system would have automatic adjustments to prevent episodes when it falls out of actuarial balance to provide an excuse for clown shows like the one the Bush administration is still putting on. The system would have add-on private accounts because it is a scandal and a disgrace that the poorer half of Americans have essentially no investments in the stock market.

It is a shame that we have been unable to use this year's debate to move us closer to an ideal system. But--given the manifold incompetencies and mendacities of the Bush administration--it was never more than a one-in-twenty shot anyway.

Speaking of manifold incompetencies (or perhaps it's the tragedy of Krugman Disease), the above is too clever by about 10-1/2. Many decades ago, Milton Friedman showed us how to solve the problem of people who are unable to work and earn an income (disability, old age, laziness, it doesn't matter); the negative income tax.

A version would be; 1. A defined benefit each year of (for purposes of illustration) $12,000 for everyone over the age of (again, to illustrate) 65.

2. A 50% tax on any monies received, from $0 to $24,000, from any source; earned income, retirement income, gifts. Once the person reaches $24,000 in revenue, the regular income tax tables could apply.

The above would guarantee a subsistence income to everyone, would provide incentives to work and improve one's situation, and would mitigate the tax burden on those under the age of 65 (the bulk of the population).

Were a person to receive, say $ 8,000 in any form, that person would have $16,000 to spend, and the taxpayers would only have to provide half ($8,000) of it. At $24,000 the taxpayers are relieved of all burdens, since the 50% tax recovers the entire 'defined benefit'.

Even better, it could be totally funded by income taxes, meaning higher earners would carry the brunt of it. Everything a liberal could want.

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