Reform both parties can/should embrace

In the latest issues of The New Republic, Harvard professor Niall Ferguson and economist Laurence J. Kotlikoff outline a sweeping plan that will eliminate corporate and personal income tax (as well as the payroll (FICA) tax, and the estate and gift taxes) in favor of a federal sales tax, establish a new universal healthcare system based on vouchers, and reform Social Security in by providing personal savings accounts. Sounds like a conservative’s dream, and it is if they can allow a couple more progressive provisions to make these changes more just.
Basically, these reforms are all shaped using four fundamental principles that most progressives (and indeed most Americans) will believe in:

(1) The federal fiscal system should be moderately progressive. In other words, the net effect of all federal programs taken together should be to reduce somewhat the inequalities of income that are inherent in any market-based economy, but not in such a way that economic efficiency is compromised and growth lowered.
(2) There should be a system of universal health care–so that no American is denied necessary medical treatment–but the system should also be affordable.
(3) When they stop working, all Americans should be guaranteed a basic income of at least 40 percent of their pre-retirement earnings (the original goal of the Social Security system).
(4) The federal fiscal system should be based on the principle of intergenerational equity; that is to say, net lifetime taxes should take out of our children’s income roughly the same proportion as they take out of our income.

These principles are adhered to, more or less, throughout three primary modifications to the tax code, Social Security System and the health care industry. I recommend to anyone that they read these plans (subscription) and attempt to poke holes in it. I would love to see a national debate framed around these ideas and to see what emerged out of that discourse. I have summarized the article below if you don’t want to read it. It is still a pretty lengthy summary should you choose to continue reading.


Tax Reform
The idea is to basically all forms of taxation (personal/corporate income tax, the payroll (FICA) tax, and the estate and gift taxes with a federal retail sales tax, or FRST, (set at 33%) that includes a rebate paid monthly to households, based on the household’s at or below the federal poverty line.
This would do a couple things. First it would eliminate the regressive FICA tax, it would effectively tax wealth (not just wages) because, “when the rich spend their wealth and when workers spend their wages, they would both pay sales taxes”, it would save hundreds of billions of dollars in tax compliance costs and it would create an incentive to save (which is sorely needed in light of the now 0% savings rate in the U.S.). Lastly, FRST would create more equity between the generations by “asking rich and middle-class older Americans to pay taxes when they spend their wealth.”
Social Security Reform
The Social Security retirement system would be abolished (in stages) and in its place the Personal Security System (PSS) would be established. PPS would provide individual accounts for each American to accommodate their retirement savings. “All workers would be required to pay 7.15 percent of their wages up to what is now the Social Security-covered earnings ceiling (i.e., they would contribute what is now the employee FICA payment)” which will now be abolished.
Government contributions to the unemployed and disabled and make matching contributions on a progressive basis to workers’ accounts, thereby helping the poor to save.

All PSS accounts would be private property. But they would be administered and invested by the Social Security Administration in a market-weighted global index fund of stocks, bonds, and real-estate securities. Consequently, everyone would have the same portfolio and receive the same rate of return. The government would guarantee that, at retirement, the account balance would equal at least what the worker had contributed, adjusted for inflation…

One of the other benefits of such a plan is that (unlike Bush’s plan) brokers and insurance agents don’t see huge profits and gains off your money. “There would be no loads, no commissions, no fees” and PSS would take advantage of the “overwhelming advantages enjoyed by all state systems of social insurance: economies of scale and reduction of risk through government guarantee.”
Health Care Reform
The existing fee-for-service Medicare and Medicaid programs would be dismantled and all Americans would be enrolled in a universal health insurance system called the Medical Security System (MSS). Each year the MSS would provide each American with an individualized voucher to be used to purchase health insurance for the following calendar year. “The size of the voucher would depend on the recipients’ expected health expenditures over the calendar year. Thus, a 75-year-old with colon cancer would receive a very large voucher, say $150,000, while a healthy 30-year-old might receive a $3,500 voucher.”

The vouchers would pay for basic inpatient and outpatient medical care, prescription medications, and long-term care over the course of each year. If you ended up costing the insurance company more than the amount of your voucher, the insurance company would make up the difference. If you ended up costing the company less than the voucher, the company would pocket the difference.

This would introduce a couple major improvements to the health care system – most of which center on mobility and competition – everyone would be able to take their vouchers anywhere they wanted – they could actually shop and compare services. What a novel idea. This would drive costs down while at the same time, improving services – cutting off any of the old criticism that a state-sponsored universal health system would lead to a worsening of care. Republicans should love the free market aspect of this.
There is much I have left out (and I am sure much the authors left out as well) but you should get the basic idea. What do you think? I would like to hear from all sides as debating these issues and this plan can either make it stronger or expose its weaknesses. Both outcomes are worthwhile.

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