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Thursday, November 18, 2004

The Easy (braindead) solution to Social Security 

The solution, as proposed by a member of the Clinton administration's Social Security Advisory Council:
1) Raise the cap on income, effectively raising taxes on those earning over $87K.
2) Cancel a rollback on the estate tax, taxing homes upon death. This usually means taxing the homes so much they must be sold to pay for the additional taxes.
3) Mandate that state and local workers join Social Security. After all, you're forcing everyone else, why leave some exempt? Let's here it for Federalism! Or perhaps this would highlight the pyramid scheme which would normally be considered fraud if it weren't done by the government.
4) Use more accurate cost-of-living estimates, i.e. lower benefits.

There you have it, the inevitable downward spiral of raising inputs and lowing outputs in a government program.

By that's not all. The following things are bad ideas:

- Raising the retirement age, because some people who retire early really need to. Can't you just keep the early retirement constant (62) and raise the real retirement age (say 67 to 70 gradually).

- Privatizing accounts, because they'll be, err... private, and people might make mistakes. We can't let 'em! How pro choice...

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Wednesday, November 17, 2004

Flat Tax 

Andrew Sullivan descibes why a flat tax works, both from a fiscal policy and political point of view. This is related to what Arnold Kling wrote recently about taking into account both economic and political incentives into drafts of fiscal policy.
From a political perspective, however, having four broad-based taxes with low rates would help to discourage lobbying. The incentive to lobby for an exemption is much higher when marginal rates are 35 percent than when rates are 8 percent.

For example, consider the corporate income tax. As it stands now, the social cost of the corporate income tax (including compliance costs, the costs of rent-seeking as K Street lawyers lobby for exemptions, and the costs of economic distortions) exceed the revenue that it brings in, which is why it is reasonable for economists to support abolishing the corporate income tax altogether. My hypothesis is that with a tax rate of 8 percent, the K street rent-seeking would diminish sharply, compliance costs would decline because of reduced complexity as well as reduced incentives to dodge the tax, and the economic distortions would be reduced as well.

Reducing the marginal tax rates on personal and corporate income from 35 percent to 8 percent would reduce the value of tax exemptions by 80 percent. I think that this would shut down the K Street tax lobbying industry, or at least curtail it sharply. Even the real estate lobby might decide that the mortgage interest deduction is not worth fighting for when the marginal personal income tax rate is only 8 percent to begin with.

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Thursday, November 04, 2004

Bush on Social Security 

I haven't made any comments here on Bush's victory. I am happy about it. First because people like this are happy, for a good reason. Second because of this plan to immediately start work on personal retirement accounts replacing Social Security. [more on Social Security privatization].

There are other reasons, but I'd rather you follow those links than stay here.

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