Monday, May 25, 2009

Social Security/ CPP

State of play:

1. We have a tax, the payroll tax, that is (a) regressive and (b) punishes employment.

2. We have a benefit, the social security benefit, which is also regressive, and which reduces saving.

3. The first brings in a lot more revenue than the second expends, and will continue to do so for a few decades. However, there is really no connection between the two.

4. We pretend that fact 3 means there is a "trust fund", but really there is just an accounting fiction within the books of the US Government, said books vastly in deficit overall.

Official Pith & Substance position:

1. This tax should be killed before any other tax. In a perfect world, the US Government would get the additional revenue (and enough to deal with the inevitable Bush/Obama deficits) from a national VAT.

2. This benefit should be kept at its current level. However, it should not be allowed to grow at the rate of the economy as a whole. Instead, government policy should "nudge" people into putting money in defined contribution plans, thereby increasing saving.

3&4. We should stop pretending there is a trust fund, since there is not, in fact, a trust fund.

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