Is Redistributive Social Security Reform Worth It?
By Lancelot Finn (March 2005) Of all the Social Security reform plans proposed to date, the one most likely to get bipartisan support was proposed by Senator Lindsay Graham of South Carolina. Graham proposes to combine the creation of personal accounts with an increase in the payroll cap. The plan forces conservatives to weigh two conservative values: reducing dependency on the government, and holding down the marginal tax rate. Graham proposes to increase the cap on income for which the Social Security payroll tax is payable, from $90,000 to as much as $200,000in effect, a substantial tax hike on the relatively affluent. Meanwhile, the plan would allow workers to divert up to 4% of their payroll tax into a personal investment account. Over time, the plan would convert Social Security from a transfer system to a genuine mandatory savings scheme. But it would make the overall tax-and-transfer system notably more progressive. From the economic point of view, the argument for linking the
