December 28, 2006
About Giving Money Away
I wince when I hear a politician giving money away. But I am trying to consider, seriously, some policy ideas that may be the best we could expect.
First was Senator Jeff Sessions's $1000 to newborns. He was on Larry Kudlow's TV show early this week pitching this idea. He has been pushing it for sometime but believes it may be more conducive to the 110th Senate.
The idea is to create a government savings account fir every child born after the bill is signed, to fund that account with $1000, paid now not on debt. Then to mandate employers' contributions of 1% of wages to the account and to have the government match it under a certain income level.
"Oh my God!' yells I at the TV. "This is Republicanism in the 21st Century?"
But Mr. Kudlow is -- not only deferential -- supportive. He sees it as a step toward private accounts and an introduction to savings and investing to some lower on the income scale.
Today The Everyday Economist links to an article in the NYTimes by George Mason U. Professor Tyler Cowen. Cowen suggests Universal 401(k) Accounts Would Bring the Poor Into the Ownership Society
The core idea is simple. The federal government creates tax-free retirement accounts for lower-income Americans, supplementing private accounts where they already exist, and matching personal contributions to those accounts. The amount of the match would depend on the income of the family and how much they save.
Cowen wants to fund it by removing $1 from Medicare or Social Security for each dollar applied to matching 401K contributions.
Once you admit that we're not going back to the 19th Century, these giveaways look pretty good. There will be a huge government component in retirement, why not create a viable funding mechanism and wrap it in a positive incentive structure?
Milton Friedman appreciated the efficiency and incentive of the EITC. I'd love lasseiz faire but this is a good model to settle for.