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Almost Anything!

I share Noam Scheiber's concerns that even some kind of add-on private accounts plan could wind up undermining Social Security, but if Ramesh Ponnuru is really so certain of the "investor class" dynamic that he's actually "for almost anything that expands the number of people in the markets and the extent of their involvement" then perhaps it's time to reconsider. Maybe we can get Republicans to give away the store, in exchange for offering universal membership in the investor class. Here's the Yglesias plan:

  • First, we have to address Social Security solvency, by a combination of raising the payroll tax cap and adding the missing state and local employees to the system.
  • Second, we need to restore solvency to the larger budget by reversing all of Bush's tax cuts.
  • Third, we establish a universal system of "opt-out" private accounts that will automatically deposit $500 of your pre-tax income into a tax free retirement account. You can get the money back if you fill out a form.
  • Forth, on top of the earlier tax hikes, we have a new tax hike on, say, the top 10 percent of income earners. This money will then be deposited in the private accounts of, say, the bottom 30 percent of income earners.
Sure, it might undermine Social Security over the long term -- but I'd take my chances on the odds that it won't. But can you see conservatives going for so many delicious tax increases?

March 4, 2005 | Permalink

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Comments

Can't see them going for it, but I would think they'd be pretty excited about #3, increasing number of investors. it's an obvious point, but if everyone is an investor, then any regulations or controls on big business, even monopolistic ruthless ones, would theoretically be opposed by everyone. (I've always thought this was the 2nd big reason to get ss funds into the markets.)

But then again we've got a whole group of people in power who think that bankrupting our country is a good thing, so who knows how anyone would really react.

Posted by: jrcjr | Mar 4, 2005 1:01:01 PM

Forth,...

OK, now you're not even trying.

On the more substantive point, I agree completely. Instead of refuting the investor class principle, liberals should use it to their advantage.
I've always thought that a lot of the excesses of corporate America would be ameliorated by a more democratic investor class.
There might even be a free-trade angle to this.
"Sure, your jobs might be going to India, but now those Indians work for you." If it is at all possible to have the middle class and the working poor earn a substantial portion of their income from investment returns, we might also deal with growing income inequality whereby wage growth fails to track total economic growth.

Posted by: WillieStyle | Mar 4, 2005 1:04:29 PM

May I offer an indexing scheme for FICA max (the cap on social security withholding)? Salary of a Congressman + $1.

Posted by: Dave Schuler | Mar 4, 2005 1:12:58 PM

First, we have to address Social Security solvency, by a combination of raising the payroll tax cap and adding the missing state and local employees to the system.

Since SS is designed to be a pay-in pay-out system, I can't really see where increasing the number of payers is really going to serve any long term purpose, since eventually it will just lead to larger payouts, and crisis all over again.

Second, we need to restore solvency to the larger budget by reversing all of Bush's tax cuts.

Or...we could cut spending? A blasphemous notion, I know, but an effective one as well. Granted, neither party seems interested in the idea.

Third, we establish a universal system of "opt-out" private accounts that will automatically deposit $500 of your pre-tax income into a tax free retirement account. You can get the money back if you fill out a form.

Forgive my stupidity, but what's the functional difference between that and just cutting taxes?

Posted by: Matt | Mar 4, 2005 1:35:48 PM

I don't understand: what's the point of raising the FICA cap as opposed to eliminating it? Are you really so concerned about people who make millions paying 12% more in taxes? They should be paying 60% more.

Posted by: abb1 | Mar 4, 2005 1:37:11 PM

Heard Stephen Moore on NPR with his usual lies re Soc. Sec. but his (ab)use of the term investor class was amusing. On the one hand he said half of us are in the investor class but later he said most people pay more in payroll taxes than anything else. I guess his definition of being in the investor class is satisfied if one owns 100 shares of a stock valued at $10 a share.

Posted by: pgl | Mar 4, 2005 1:45:52 PM

Okay, in response, the Dicely Plan on Social Security:

First, address the solvency issue by replacing the payroll tax with a flat and uncapped supplemental dedicated income tax; this hits all forms of income, not just salary and wages, and all levels of income.

Second, we improve general fund solvency by phasing out the Bush tax cuts, and by taxing capital gains as regular income when realized, with an allowance for taxpayers to voluntarily recognize gains for tax purposes in advance, and then deduct those advance gains from the amounts later realized for tax purposes. Note that, given the first plank, this also further reinforces social security solvency.

Third, we establish a universal system of "quasi-whole-life" insurance with premiums paid as a payroll tax; this provides a death benefit equal to the past 12 months income up to a cap (which adjusts with inflation), and the cap plus some fraction of income beyond the cap. The surpluses generated (the 'premium' tax rate should be set to produce a small expected surplus initially; extending life expectancy and wage growth outstripping inflation in general should grow the significance of the surplus over time) are distributed to individual, self-directed retirement accounts from which funds may be freely withdrawn early, but are then taxed as income, whereas funds withdrawn to purchase qualified annuities, or the annuities they purchase, at a specified retirement age are not taxed at all.


Posted by: cmdicely | Mar 4, 2005 1:49:52 PM

Can't see them going for it, but I would think they'd be pretty excited about #3, increasing number of investors. it's an obvious point, but if everyone is an investor, then any regulations or controls on big business, even monopolistic ruthless ones, would theoretically be opposed by everyone.

Not really. First, even if everyone is an investor in at least a small way, that doesn't mean they aren't still mostly reliant on wage labor. Second, if everyone is an investor in at least a small way, regulations that promote accountability of management to shareholders and enable shareholder lawsuits will be more, not less, popular. Not all regulation of "business" is against the interests of the shareholders.

Posted by: cmdicely | Mar 4, 2005 1:52:52 PM

Does this put MY in the Conscience Coalition or the Fainthearted Faction? They have never been clear.

Too much appeasement for my taste. Take out #1 & #3. In any case, Dems have no control of what comes out of conference, so they should not negotiate with themselves.

Posted by: bob mcmanus | Mar 4, 2005 1:53:28 PM

Better yet, have a mandatory savings plan that pays per hour worked.

Posted by: Matthew Saroff | Mar 4, 2005 1:54:59 PM

Oh, in the "quasi-whole-life" portion of the plan above, the surpluses are distributed in proportion to the death benefits for which each participant would be eligible, and the "income" used to calculate benefits is just the wages to which the payroll tax applies.

Posted by: cmdicely | Mar 4, 2005 1:55:08 PM

Ramesh claimed Noam and Paul are opposed to individuals holding 401(K)s. Read their op-eds and that is NOT what they said. I expect the NRO econopundits to lie as I expect Lowry and Goldberg to lie, but I had thought Ramesh was one of the few honest folks over at NRO. Ahem!

Posted by: pgl | Mar 4, 2005 1:55:50 PM

This "investor class" thing is a bit strange, considering that Chile, the shining example of private accounts, has a socialist government.

Posted by: Carlos | Mar 4, 2005 2:03:22 PM

What's thhe $500 in point 3? Per month? Per year? Is it the same for everybody regardless of income? WTF?

Posted by: AF | Mar 4, 2005 2:08:01 PM


Just FYI, I'm pretty sure that pulling state and local employees into SS would be unconstitutional, as it would entail the states paying taxes (the "employer portion" of FICA) to the federal government. You actually _might_ be able to get an amendment through to change this, but I wouldn't bet the farm on it.

--Dave Griffith

Posted by: dave | Mar 4, 2005 3:08:57 PM

What this investor class theory misses is the relative size of the investments. Yes, many people have money in the stock market (directly or indirectly) these days. But most of us don’t have very much money there, and it’s sitting in retirement investments whose income we will not realize for years to come. So we pretty much don’t care all that much, at least not in the same way that trust-fund heirs, living off their interest and dividends, do. Instead we are actually living off our wages and salaries and as long as as that’s true we aren’t going to become the sort of “investor class Republicans” that Ponuru and others theorize about. Maybe when retire, but until then we’ll continue to have the same political concerns that low and middle income people have had for decades: do we have enough money to make ends meet?, will we lose our job next week?, are our benefits about to be cut?, etc. Precisely becaues people care about the immediate future more than the distant future these private accounts won’t change anyone’s politics much—except, maybe, retirees themselves.

Posted by: JonF | Mar 4, 2005 3:45:32 PM

I love cmdicely suggesting a term life policy equal to one year of income to replace a multi year income from ss. You really thing you could fool people into going for that massive a beneit cut?

Posted by: spencer | Mar 4, 2005 3:45:38 PM

dicely, I agree it would theoretically increase regulations that hold mgmt accountable to shareholders.

butthe employee and the small business owner will lose clout in that scenario. and most of us will still rely on our wages.

was interesting to recently see wal-mart demonstrate the need to navigate these opposing forces with their carefully-worded statements about how their average salary is quite good at almost twice the minimum wage (to reassure communities that they wouldn't be a drain on them), while any listening shareholders were free to understand that meant under 14k/year (to reassure them that they really don't pay well at all--except the top brass of course, and their salaries were in the average too).

Posted by: jrcjr | Mar 4, 2005 4:15:25 PM

I love cmdicely suggesting a term life policy equal to one year of income to replace a multi year income from ss. You really thing you could fool people into going for that massive a beneit cut?

No, which is why I didn't suggest it. Nowhere, at all, in my suggestion is there any reduction of existing SS benefits -- merely a change in the funding mechanism and an expansion of the contributing and eligible population.

The life portion is in addition.

Apparently, you missed the first plank of my proposal entirely.

Posted by: cmdicely | Mar 4, 2005 4:16:58 PM

Just FYI, I'm pretty sure that pulling state and local employees into SS would be unconstitutional, as it would entail the states paying taxes (the "employer portion" of FICA) to the federal government. You actually _might_ be able to get an amendment through to change this, but I wouldn't bet the farm on it.


So? Your reform proposal can calculate benefits on actual contributions, require state employees to only pay the employee contributions, and then over time phase out the employer share in favor of putting the whole cost on the employee side. Since there is no practical difference in which side the money comes out of (it all comes from the employer to the government anyway), it doesn't really matter.

Or you can do what my plan did, and shift it all into a flat supplemental income tax.

Posted by: cmdicely | Mar 4, 2005 4:19:20 PM

With regard to increasing the FICA max, I suggest not implementing that immediately -- building up the trust fund only seems to make the adminstration salivate and look for ways to divert the extra revenues. If you had the cap go up only after 2018, you could do what Bush does and say the 10-year cost of the provision was . . . zero!

Posted by: barry | Mar 4, 2005 4:55:34 PM

I assume the $500 is per year, and is in addition to FICA withholding, not instead of it. I think it's a good idea, because that sort of thing has been shown to actually increase savings. I think the form for getting the money refunded should be used to do some serious education about the advisability of saving -- the way rental car companies make you think hard about refusing their collision damage waivers.

Posted by: barry | Mar 4, 2005 5:02:00 PM

I assume if Mr. Yglesias realizes that when he get rid of the cap on SS taxes he is basically doing the functional equivalent of means testing the benefits, not that there's anything wrong with that.

Maybe I'm really old, but I've always thought that it was a big important thing with Democrats that SS was not a welfare program, that it was insurance and that what you paid in and what you got out were somewhat connected. Currently this is roughly true, the taxes are regressive but the benefit calculation is highly progressive, so though it may not be perfect proportional it's close enough for government work as they say.

Given that I'm sure that Mr. Yglesias is close to the heartbeat, nay he's very likely the actual heartbeat, of Democratic/Left/Liberal thought, is a change of mind or focus going on here ? Will the Dems be for changing the name of SS to Aid for Dependent Old People, or something like that ?

Posted by: j mct | Mar 4, 2005 5:30:08 PM

Maybe I'm really old, but I've always thought that it was a big important thing with Democrats that SS was not a welfare program, that it was insurance and that what you paid in and what you got out were somewhat connected.

So? You can still provide increased benefits for the increased contributions above the old cap, particularly if you do it at a reduced rate. Then, there is still some connection between what you pay in and what you get out. Or you can allow additional contributions to cover future or past below-maximum contributions, or contribute to reduced retirement age.

Posted by: cmdicely | Mar 4, 2005 5:55:34 PM

I always notice a difference in how lefties like Matthew Yglesias discuss increasing taxes with how righties like Matt (I assume he's a righty or libertarian. Not sure) discuss cutting spending: the lefties have specific proposals, like repealing EGTRRA or raising the cap on FICA taxation. The righties rail against the amorphous blob that is "spending," and propose cutting it.

Posted by: Julian Elson | Mar 4, 2005 6:00:32 PM

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