Yet another social security plan

by on November 15, 2004 at 7:57 am in Economics | Permalink

Larry Kotlikoff tries to make everyone happy: 

†¢ Part 1 [of the plan] replaces Social Security’s payroll tax with a federal retail sales tax.

†¢ Part 2 eliminates any further Social Security benefit accrual, paying (with the sales tax receipts) only the benefits now owed current retirees and current workers.

†¢ Part 3 sets up an individual account system, but one that Democrats as well as Republicans can support.

The change in taxation is progressive, while the account receipts are put in a global index fund with government guaranteeing the downside.  Here is the full argument.

I file this under the "would likely lead to massive socialism" category, but many leading (and market-oriented) economists have endorsed the idea.  In the best case scenario it could work, but this would require reasonable fiscal transition costs, that the accounts remain truly private, and that returns capture some of the "equity premium" on stocks.  I’ll turn to the latter topic within the next few days.

Thanks to Craig Newmark for the pointer.

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