Tuesday, March 15, 2005
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The way out of the fix:
Social security and medical insurance reform depend on the tax and payroll system. This does not make it more difficult but actually easier. It does require a paradigm shift. The basic issue is to promote savings and investments, to help and require people buy insurance for life's risk, health, retirement, disability, unemployment, and big one time expenditures such as education, home buying or other needs. People should be encouraged to have reserves and build wealth.
Since there are transfer payments from those with more to those with less the benefits should compensate those better off through the tax system. Tax credits and having payments into health and retirement plans be pre-tax (come off adjusted gross income) is very important for political as well as economic reasons. There has to be a meaningful income tax rate or 20% or so. Most of the money to pay benefits to those who contribute less than their true cost has to come from a VAT or sales tax. Since the less well off pay a higher rate of sales taxes (higher proportion of their income goes into consumption) it then becomes more fair that they receive more subsidies to pay for those benefits.
The paradigm shift is to see payroll deductions as partly paid by the individual (includes the employer contribution) and partly subsided for low income or supported by credits for better income people. For higher incomes there are tax advantages for low incomes direct payments from entitlement funds. All accounts are private accounts but managed by licensed providers. For retirement and health funds there is a minimum contribution (about 15% of total wages) if this is is still less than required for the basic plans an addition amount is paid in by earned income tax credits or negative income tax. Those that have more can buy better plans and pay for it with pre tax income.
There is no large bureaucracy but freedom of choice. All health, retirement, disability insurance, unemployment, and retirement, educational, home buying, savings are pre tax and their returns are tax free. Plan are approved and supervised but private such as on the federal employees system. People under 40 have their current value in social security available for transfer to personal accounts at the choice of the individual. People just entering the labor force only have personal accounts. Medicaid can't be included but Medicare could with a credit of several thousand dollars into private plans to be replaced over time by saving in the health plans of younger workers. Additional benefits require additional costs. One can hope that real competition can increase efficiency. American medical delivery system need long term reform to become a healthily systems of network providers working on a per capita basis rather than the more services the more fees paid by a third party that can't control the purchases or prices.
Investment vs. consumption:
The way out of the fix:
Social security and medical insurance reform depend on the tax and payroll system. This does not make it more difficult but actually easier. It does require a paradigm shift. The basic issue is to promote savings and investments, to help and require people buy insurance for life's risk, health, retirement, disability, unemployment, and big one time expenditures such as education, home buying or other needs. People should be encouraged to have reserves and build wealth.
Since there are transfer payments from those with more to those with less the benefits should compensate those better off through the tax system. Tax credits and having payments into health and retirement plans be pre-tax (come off adjusted gross income) is very important for political as well as economic reasons. There has to be a meaningful income tax rate or 20% or so. Most of the money to pay benefits to those who contribute less than their true cost has to come from a VAT or sales tax. Since the less well off pay a higher rate of sales taxes (higher proportion of their income goes into consumption) it then becomes more fair that they receive more subsidies to pay for those benefits.
The paradigm shift is to see payroll deductions as partly paid by the individual (includes the employer contribution) and partly subsided for low income or supported by credits for better income people. For higher incomes there are tax advantages for low incomes direct payments from entitlement funds. All accounts are private accounts but managed by licensed providers. For retirement and health funds there is a minimum contribution (about 15% of total wages) if this is is still less than required for the basic plans an addition amount is paid in by earned income tax credits or negative income tax. Those that have more can buy better plans and pay for it with pre tax income.
There is no large bureaucracy but freedom of choice. All health, retirement, disability insurance, unemployment, and retirement, educational, home buying, savings are pre tax and their returns are tax free. Plan are approved and supervised but private such as on the federal employees system. People under 40 have their current value in social security available for transfer to personal accounts at the choice of the individual. People just entering the labor force only have personal accounts. Medicaid can't be included but Medicare could with a credit of several thousand dollars into private plans to be replaced over time by saving in the health plans of younger workers. Additional benefits require additional costs. One can hope that real competition can increase efficiency. American medical delivery system need long term reform to become a healthily systems of network providers working on a per capita basis rather than the more services the more fees paid by a third party that can't control the purchases or prices.
Investment vs. consumption:
