What is the economic reward for working? The answer is surprisingly complicated. Going to work, earning a living, and spending one's earnings over time raises a variety of taxes and government benefits and lowers a variety of taxes and benefits – and not just in the current year, but in all future years as well.
Medicaid is enormously expensive. For the second year in a row, spending on Medicaid (for the poor) will exceed spending on Medicare (for the elderly).
In an election-year rush to satisfy impatient voters, politicians of both parties are endorsing ill-considered schemes to add a prescription drug benefit to Medicare. While the problems with the program are bad, most of the proposed solutions are worse.
Welfare rolls nationwide have fallen by more than 50 percent since welfare reform was enacted in 1996. The goal of reform was not simply to reduce the number of welfare cases, but to move families on welfare – the vast majority of which are headed by single women – from dependency to independence through work.
Unlike the United States experience, MSAs in South Africa developed in a relatively free health insurance marketplace. As a result, employers and insurers have been able to experiment and innovate to find out what works and what does not. Their experience offers valuable lessons for the United States.
Social Security reform is one of the most prominent domestic policy issues in the United States. The U.S. is not alone in facing the daunting challenges posed by its retirement security program.
The payroll tax that funds Social Security, Medicare and Disability Insurance, called FICA, is already the largest tax most American families pay. In the future, it will claim an even greater share of Americans' incomes. From its current level of 15.3 percent (combining the employer and employee shares), the payroll tax will need to rise above 25 percent of workers' incomes by the middle of the century in order to pay benefits to today's teenagers when they retire.
Contrary to the expectations of many welfare reform critics, most of the women heading these families went to work. In fact, the proportion of single mothers who work has increased dramatically since welfare reform, nearly matching the proportion leaving welfare.
Largely for historical reasons, the American tax system is disconnected with the way women participate in the economy. The major elements of the tax system were put in place in the 1930s, 1940s and 1950s, when most women, certainly most mothers, were not in the workforce.
Recent legislation greatly expands the limits on tax-deferred savings accounts, including 401(k) plans and IRAs. This legislation is the latest in a quarter century effort by the federal government to convince Americans that saving through tax-deferred retirement accounts results in lower lifetime taxes.
Traditional defined benefit pension plans, which are managed by employers and which promise workers a specific monthly payment on retirement, are disappearing. Instead, more than 42 million workers now participate in defined contribution retirement plans, primarily 401(k) plans, which specify the annual contributions to an employee's pension fund.
Social Security and Medicare will begin paying out more in benefits than they collect in payroll tax revenues. As a result, taxes will have to rise.
In less than a decade, members of the baby boom generation will begin reaching their retirement years. At that time, 77 million people will begin to leave the labor market. They will cease to be taxpayers and begin to receive Social Security and Medicare benefits. This will mark the beginning of an enormous conflict over resources. Indeed, it is probably no exaggeration to say that we are approaching generational warfare.
Proponents of cutting the capital gains tax rate cite economic studies showing increases in economic growth and realizations of gains, and even higher revenue for government. Opponents argue that a capital gains tax cut is unfair because it only benefits the rich. But neither side argues from a position of principle. The real question is: Are gains in the value of assets income like any other form of income – such as wages, dividends, rent and interest? Or are they not income?
There have been a number of proposals to invest the Social Security surplus in the financial markets. Some proposals call for the government to do the investing. Others would have workers deposit part of their payroll tax payments in individual accounts that would be invested in assets, such as stocks and bonds. Are such investments inherently risky?
"Privacy" has often been thought of as a traditional American value, but the concept has always been difficult to define precisely. With the passage of time and the development of technology, particularly the ability to share information quickly and inexpensively, the issues involved have become increasingly complex.
In our society, people who choose not to pay for insurance know that they are likely to get health care anyway – even if they can't pay for it. The reason is that there is a tacit, widely shared agreement that no one will be allowed to go without care. As a result, the willfully uninsured impose external costs on others – through the higher taxes or higher prices which subsidize the cost of their care.
A surplus is political manna, enabling politicians to fund their favorite programs. The fundamental choice is between using the Social Security surpluses to reduce the federal debt and using them to prepay future Social Security benefits. All other policy choices derive from this choice. Thus, the bulk of our analysis deals with the choice between retiring debt and prepaying future benefits.
This paper considers Social Security as an investment for different classes of workers based on their level of education. Why education, rather than income? Everyone's income will vary a lot over the course of a 40- to 45-year work life. As a result, level of education is a better predictor of expected Social Security taxes and benefits than current wages.
The two major presidential candidates, Vice President Al Gore and Texas Governor George W. Bush, are offering competing proposals to deal with the gap in prescription drug coverage.
Texas' criminal justice system has been undeservedly criticized, partly for political reasons and partly by those who oppose the state's whole approach to crime and punishment, particularly on such issues as the death penalty and the right of qualified citizens to carry concealed weapons. Although many of these critics maintain that Texas has the wrong approach to criminal justice, crime fell sharply in Texas during the 1990s.
In general, older generations are receiving reasonable rates of return from Social Security, especially among couples with dependent spouses. But almost all future retirees will, on the average, have worse rates of return than they would have received if their tax payments had been privately invested.
The federal estate tax has been instituted and repealed several times. Usually it has been seen as a source of revenue, rather than a means of redistributing wealth. But the current tax is clearly designed to redistribute wealth: it is imposed on estates with a value of as little as $675,000 and rises rapidly to an effective tax rate of 60 percent – the second highest estate tax rate of any country in the world.
In South Africa, MSA plans have competed against other forms of insurance on a level playing field. The result has been remarkable. In a few short years, MSA plans have become increasingly popular, and they already have captured about half the market. By contrast, HMO-type managed care has made only small inroads.
The probation and parole systems could be made more effective and efficient by enlisting the private sector. Those released on probation (nonincarceration) or released early from prison could be required to post a financial bond guaranteeing behavior in accord with terms of the release. If individual accountability is the answer to crime, then it must include the most powerful kind of accountability: financial responsibility.