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Notes from the Sausage Factory

The always thoughtful Tyler Cowen, econ prof at free market hotbed George Mason University and NY Times columnist, is promoting an idea that has some merit. From the ashes of the Bush Social Security reform ideas, Cowen is suggesting something called "universal 401(k)s."

Gut reactions:

* It passes the first test. While a frightening thought, were I in Congress, would I vote for it? Yes, it, in broad outlines, is an improvement over the current mess.

* Why use the more restricted 401(k) vehicle when IRAs are already far more universal and far more flexible? IRAs are less "managed" than 401(k)s.

* Why "match" the 401(k) contribution when the contributions could, for instance, be excluded from one's personal taxable income? Excluding income is as or more "progressive" than matching, and is more controllable by the taxpayer/saver. Even when you factor in the earned income tax credit, the effective and marginal tax rates over poverty on the working poor and lower income groups generally are the highest, when you factor in the very high Social Security and Medicare taxes, as well as the many other taxes that the less well-to-do face. The current tax system taxes people back into poverty. From a "first things first" perspective, these people could use tax relief the most in our society.

There is, as a general statement, a tendency among pols and wonks to want to create "new" programs, even occasionally well-intentioned ones. My view is that this "pride of authorship" impulse is counterproductive, and is one of the reasons Bush's plan has failed to catch fire. Making a tweak to the existing IRA doesn't score enough points in the history books, perhaps, so let's create something we'll be remembered for. It seems, at least, to go that way.

Pride is not a deadly "sin" for nothing.

-Robert Capozzi

Posted by Robert Capozzi on January 1, 2007 07:27 AM |

Comments

I can't help but feel threatened by any program that results in a massive influx of capital entering the stock market via the government. You provide the government with an enormous degree of leverage over the market that way, and all one needs to do is control the bueraeucrats that make the investment decisions to go crashing about the market with either good intentions gone bad, or personal profit at the expense of the market.

Posted by: Tarvok [TypeKey Profile Page] | January 1, 2007 11:29 PM

Free-for-all (frfr-ôl) -- n. A disorderly fight, argument, or competition in which everyone present participates.

from Dictionary.com



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