Tag: social safety net

Saving Social Security

I recently received a petition for my signature to save social security from an expected Republican attack. To save it we must understand what it was meant to be and what it now is and what problems it faces.

Initially the Social Security program was meant to be a savings financed retirement fund to which employers would be required to contribute half of what was deducted from worker paycheck and put in the Social Security Trust Fund (a fully funded life insurance program). This is (or was supposed to be) like our personal IRAs but with the employer contribution (though many employers offer retirement programs for their employees to which they also contribute in addition to Social Security contributions). But from the beginning, current worker/employer contributions to the Trust Fund were used to finance current retiree benefits rather than being saved for the contributor’s future retirement, i.e., it was pay-as-you-go.

Three factors undermined this pay-as-you-go model. First, benefits were indexed to wages rather than inflation and as real wages have raise over time so have benefits. Second, the average life expectance of retirees has increased dramatically. When the Social Security scheme was launched in 1935, life expectancy in the US was a bit under 60 years (the average retiree received SS benefits for only a year or two). It is now 77.3, down a bit from 78.8 in 1919. Third, population growth has slowed and the number of workers taxes for this growing number of retirees has been and will continue to fall fast.  “Saving Social Security”

The simplest, and in my view most sensible, solution to this financing problem is to: a) increase the retirement age at which SS starts paying; b) increase the number of working age immigrates to help pay for the retired; and c) continue to encourage private pensions and IRAs. Unless you are French most of us continued working beyond normal retirement ages because we wanted to continue using our skills longer. We enjoyed what we did for more than just the money.

Adopting the above reforms would not reduce what a retiree SS beneficiary receives each month.  But it would reduce what she receives over her life time because would be retired for fewer years. Some people are calling this increase in the retirement age cutting Social Security.  What ever.

As I have argued elsewhere, I would replace Social Security with a Universal Basic Income.  “Our social safety net”

Fair Tax Act of 2023

While I will not hold my breath, I am thrilled to see the introduction of H.R.25 – FairTax Act of 2023 in the House of Representatives by Rep. Carter Earl L. “Buddy” (R-GA-1) on January 9.

“This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions.

Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.” “Fair Tax Act of 2023”

I have written a great deal about taxation, a necessary feature of government spending, and how to make it fair and economically neutral (minimal distortion of the allocation of resources in our economy). Income taxation—especially corporate income taxation—fail these tests. A universal consumption tax passes them. It is especially suitable for our globalized world where companies produce and sell in many countries. “Tax reform and the press”   “The corporate income tax”

But the issue of fairness is somewhat in the eyes of the beholder. I have also supported a Universal Basic Income (UBI), in place of our many safety net transfers including Social Security. “Our social safety net”  Not only does a UBI better fit American’s strong commitment to individual liberty and choice, but when combined with a flat consumption tax it produces a progressive impact on income that satisfies my notion of fairness. “Replacing social security with a universal basic income”

As I understand the new (actually a return to the old) and improved House rules, after consideration by the House Ways and Means Committee, the bill will be debated on the floor of the full House. This is a giant step in a very good direction.  

Compromise

We are a country of citizens with a range of views on how our community should guide and regulate our interactions. But we are all anchored in our commitment to our Constitution and its Bill of Rights. What is the nature of the compromises that enable us to live, work and flourish together?

Views on the proper role of government in supporting and improving our lives are dangerously widening. To simplify the discussion with stereotypes and not always appropriate labels I will characterize Republicans as more interested in individual freedom and Democrats as more interested in helping the poor. The two parties want both but there are clear differences in emphasis and approaches. “The great divide-who decides?”

Everyone wants to help families. But consider the difference in the approach of the Democrats with Bidens American Families Plan and the Republicans with Mitt Romney’s Family Security Act. Among many other benefits, Biden’s “plan will provide a government-paid family leave program for employees who need extended paid time off for family issues… will help working families by providing government-subsidized child care… [and] will provide free universal government-run preschool, which it claims will help children academically far into the future.” These would be run by the government or pursuant to detailed government regulations. “The American Families Plan will do more harm than good”

“Romney’s Family Security Act would replace the Child Tax Credit with a $3,000 yearly benefit per child — $4,200 for kids under the age of 5 — spread out in monthly installments that begin four months before a child’s due date,…” “Romney child care benefit democrats”

The overriding difference between Biden’s and Romney’s family plans is who makes the decisions about how the assistance is used. The same overriding difference can be seen in Democrat and Republican approaches to financing education. Charter schools and, even more so, tuition vouchers favored by Republicans leave the power of choice with parents rather than public school districts (government).  Democrats distrust the judgement of individual families to decide how best to use government assistance and want to impose conditions that insure (in their minds) that it is well spent.

How can these two conflicting approaches be reconciled? Each side will need to give up something to gain what is most important to them. Democrats want to help the poor. Republicans want to protect their freedom of choice. If Democrats are willing to give up their regulation and control of how their financial assistance is used (i.e., set aside their distrust of the poor’s ability to make wise decisions for themselves) and if Republicans are willing to give up their commitment to self-sufficiency that keeps the social safety net as small as possible, Democrats can gain a more generous safety net and Republicans can gain greater freedom of choice by coming together to enact a Universal Basic Income (UBI) in place of the large number of specific government controls assistance programs.  “Our social safety net”

In addition to allowing individual recipients to determine how best to use this assistance, two broad differences between a UBI and the existing approach stand out. The first is the difference in the financial incentive to work. Unemployment insurance, for example, ends when a recipient takes a job. Most welfare programs, such as food stamps, end when the recipient’s income increases beyond some minimal level. The incomes of many now helped by Covid-19 support programs will fall if and when they return to work. A UBI is paid to everyone whether they are working or not, so any extra income earned in any way adds fully to their income. There is no financial disincentive to work.

The second major difference is the lower administrative cost and greater simplicity of a UBI compared to those of the multitude of assistance programs with their qualification criteria that it would replace. Consider the administrative challenges faced when sending checks to those qualifying under the CARES Act as part of the Covid-19 assistance. Some intended recipients were missed. Some who were not meant to receive payments received them. It took time to set up the system of payments. But with UBI monthly payments are made to everyone without further question or investigation once they are enrolled in the system (most likely administered through the Social Security System).

My proposal would also replace all income taxes (personal and corporate) with a uniform consumption tax. This combination of UBI and consumption taxation would result in the financing of government that is progressive relative to income and would resolve the dilemma of how to tax companies operating globally. For more details see my earlier blog:  “Replacing Social Security with a universal basic income”

Democrats would gain more efficient and extensive help to the poor but would have to give up oversight and control over how that help is used. Republicans would increase their control over how they live, but would have to relax their insistence on self-sufficiency. This is a compromise whose time has come.

Saving the American Dream

The American Dream is under attack.

“The American Dream is the belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society where upward mobility is possible for everyone. The American Dream is achieved through sacrifice, risk-taking, and hard work….” “The American Dream is to succeed by work, rather than by birth”. The Dream has attracted the world’s best and brightest to our shores making America the world’s leading economic powerhouse and enabling us to live freely as we each determine what we are willing to work for, for ourselves and our families.

Historically, individuals have been limited in what they could achieve by where they were born in society, by their parent’s position in life, and by who they knew. Companies of individuals were limited by the restrictions placed on them by their governments, often by the protections from competition government granted their friends (crony capitalism). Such traditional societies limited the freedom and ambitions of its citizens and limited the productivity of its human and physical resources. In short, traditional societies were keep poorer than they would have been if their citizens had been freer to innovate and compete.

The American Dream is now under attack by Donald Trump’s trade protectionism, crony capitalist government favoritism, immigration walls, and weakening of the international rule of law that has extended the benefits of specialization and trade globally. It is also being attacked by Alexandria Ocasio-Cortez’s (LOC’s) vision of state leadership and control of production and a new generation of idealistic, but uninformed, voters who mean well but have missed the lessons of socialism’s failures. If we are to save the conditions in the United States in which the American Dream still lives, we must better understand what has led so many Americans to vote against it.

I am sure that the answers to that question are many and complex, but broadly speaking two stand out in my mind, both of which point to the measures needed to restore support for the dream.

The first is to better educate the public, especially its younger members, about the conditions that allow and encourage a productive, innovative economy. This includes understanding the proper role of government in protecting private property, enforcing contracts, maintaining public safety (the rule of law) and in providing the public infrastructure that facilitates private activities and commerce (the commons of public goods). It includes the lessons of why all socialist economies have failed as a result of the corrupting incentives of state direction of economic activity rather than the competitive search by profit seeking private enterprises for better ways to serve the public.

The second answer concerns the adequacy and efficiency of our social safety net. The American Dream concerns individuals who take responsibility for their own well-being. While on average this has opened the way for most to prosper to the extent of their talents and energy, some will, often through no fault of their own, fail and fall off the tightrope. Society has an interest (even beyond the obvious humanitarian one) in softening the fall. It has an interest in an effective social safety net. 

Some–those who have not understood the lessons of socialism’s failures–have looked to trade and immigration restriction to prevent them from losing their jobs. They object to the economic benefits of free trade when it means that they must look for a new job (however, most manufacturing job losses in the U.S. have resulted from technical progress and the resulting increase in productivity rather than from cross border trade). “Econ-101-trade-in-very-simple-terms”  “Trade-protection-and-corruption” Those with such views have supported Trump’s anti free market policies. They have been attracted by Trump’s “I win you lose, us vs them” rhetoric.

AOC and her friends point to the widening income inequality–the dramatic increase in the incomes of the wealthiest and the stagnation of the incomes of the middle class in recent years–and demand income redistribution. But she fails to understand that it has been the growth of government’s role in the economy and the incentives in big government toward corruption and crony capitalism (protectionism for the wealthy) that have reduced competition and protected the position and markets of the biggest companies with friends in government. Socialism would make those incentives even stronger.

America’s dynamism and success reflects the creative destruction of risk-taking entrepreneurs and their hard-working employees.  https://economics.mit.edu/files/1785  However, the workers whose jobs are displaced by new products and new technologies may need help in finding and retraining for new jobs. They may need financial assistance in between (unemployment insurance). If nothing else, this may be the cost of their support for such a dynamic system.  Our social safety net sometimes provides poor incentives and sometimes has holes. It is time to seriously consider replacing it with a less intrusive and more comprehensive Universal Basic Income.  “Our-social-safety-net”  “Replacing-Social-Security-with-a-Universal-Basic-Income”

The American Dream–the foundation of our freedom and affluence–is under attack from the left and the right. We should fight to preserve (or restore) it.