Ex post social insurance

Greg Mankiw has an idea:

Let’s send every person a check for X dollars every month for the next N months. In addition, levy a surtax in 2020 (due in April 2021) equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019.

Under this plan, a person whose earnings fall to zero this year returns none of the social insurance payments. A person whose earnings fall by half keeps half of the payments. A person whose earnings remain the same returns everything: They will have just gotten a short-term loan. And those lucky few whose earnings rise this year will return more than they got.

Of course, there is an implicit marginal tax rate in this scheme. Every dollar of earnings in 2020 faces an additional marginal tax rate of N*X/Y2019.

There is more at the link.


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