Towards A Good Samaritan World

Monday, February 21, 2005

"Bush shouldn't pay any price to get Social Security accounts," argues Thomas Bray. I disagree. I welcome Bush's willingness to raise the cap on Social Security payroll taxes to $120,000, and I think the idea of indexing the top level of benefits to inflation, and the lowest level to wage growth, and thus (in effect) introducing means testing gradually, is also a good idea. Together, these changes will move the tax system in a progressive direction-- not necessarily a good idea, since it increases the effective marginal tax rate over one's lifetime and thus reduces the incentive to work and productivity. But the tax cut in Bush's first term seems to me like a politically unsustainable move away from progressive taxation, so he might as well let the pendulum swing back pre-emptively rather than let the Democrats do it instead. Once the private accounts are established, you can introduce changes later: "endow" them early on, perhaps with "dividends" from immigration taxes; top them up in good times on an opportunistic basis, let people borrow against the extra income in them under certain circumstances so that they serve as a form of capital... all for the ownership society.

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