Vox always has good policy articles and they had two good ones this week. The first, on Medicaid buy-in, I started another thread for. This one is even more interesting, wage subsidies:
The first plan the article goes into is an economist’s plan to have the government match the first $14K of a worker’s income. This would apply to all workers regardless of income level, and be paid for with a 15% VAT. While I’ve always been warm to the idea of wage subsidies as the least bad solution to address income inequality, I have a problem with this one. Mainly, that for most workers it takes their money, gives some back to them(or more back to them depending on how much they make), then takes some of THAT back again, since the wage subsidy would be taxable. Argh!!!
HOw about this idea instead? Remember that idea to apply the FICA tax to all earnings instead of just the first $150K or so? Instead of using it to shore up Social Security, how about we impose a surtax of about that level on untaxed FICA income, extend it to annual capital gains of $1 million or more(to take in workers like hedge fund managers), and distribute the proceeds to the poorest third of Americans through wage subsidies, based on how much money is collected rather than a fixed benefit? The benefit would be non-taxable since it goes to poorer workers. That way, instead of everyone paying and everyone getting something back just to pay some of it back again, the wealthy pay and the poor receive and the middle class are unaffected, at least not directly.
What makes more sense to me is parts of his idea, like expanding the EITC and paying it out in people’s paychecks rather than as a tax refund. The child credit could similarly go into people’s paychecks. Given the fact that the vast majority of payroll is automated these days this is not much of a technical challenge. How to pay for it? Well, since it would cost less we could do a basket of tax increases on the wealthy plus spending cuts. Presumably we’d also see a reduction in income-based social spending due to higher wages, so we’d spend a little less on food stamps, ACA subsidies, and Medicaid.
Normally I HATE tax increases on just the wealthy, but if you’re doing income redistribution that’s the whole point. But that’s a well that we should not go to for purposes that benefit everyone directly, like free college, health care, infrastructure, etc. Programs like that should be funded by broad based taxes.
I’d also like to add how discouraging it is that you can’t go to conservative websites for decent policy ideas. Even the think tanks like Heritage and AEI are lacking these days.