Policy Forum

Keys to Job Creation

One of the main keys to job creation is a strong infrastructure.  This infrastructure includes a capable and well trained work force obtained through a strong education system. In addition, as health care costs continue to rise, this infrastructure may soon start to include a publicly-funded health care system. A recent article from the CBC highlighted these points.

Education:

Ontario [Canada] workers are well-trained.

That simple explanation was cited as a main reason why Toyota turned its back on hundreds of millions of dollars in subsidies offered from several American states in favour of building a second Ontario plant.

Industry experts say Ontarians are easier and cheaper to train - helping make it more cost-efficient to train workers when the new Woodstock plant opens in 2008, 40 kilometres away from its skilled workforce in Cambridge.

"The level of the workforce in general is so high that the training program you need for people, even for people who have not worked in a Toyota plant before, is minimal compared to what you have to go through in the southeastern United States," said Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, whose members will see increased business with the new plant.

......

He [Fedchun] said Nissan and Honda have encountered difficulties getting new plants up to full production in recent years in Mississippi and Alabama due to an untrained - and often illiterate - workforce. In Alabama, trainers had to use "pictorials" to teach some illiterate workers how to use high-tech plant equipment.

"The educational level and the skill level of the people down there is so much lower than it is in Ontario," Fedchun said.

Healthcare:

In addition to lower training costs, Canadian workers are also $4 to $5 cheaper to employ partly thanks to the taxpayer-funded health-care system in Canada, said federal Industry Minister David Emmerson.

"Most people don't think of our health-care system as being a competitive advantage," he said.

The Rich Are Getting Richer...

Link: Richest Are Leaving Even the Rich Far Behind - New York Times.

When F. Scott Fitzgerald pronounced that the very rich "are different from you and me," Ernest Hemingway's famously dismissive response was: "Yes, they have more money." Today he might well add: much, much, much more money.

The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known.

The Treasury Department uses a computer model to examine the effects of tax cuts on various income groups but does not look in detail fine enough to differentiate among those within the top 1 percent. To determine those differences, The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projections and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable.

The analysis also found the following:

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

¶The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax.

The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger.

The hyper-rich have emerged in the last three decades as the biggest winners in a remarkable transformation of the American economy characterized by, among other things, the creation of a more global marketplace, new technology and investment spurred partly by tax cuts. The stock market soared; so did pay in the highest ranks of business.

One way to understand the growing gap is to compare earnings increases over time by the vast majority of taxpayers - say, everyone in the lower 90 percent - with those at the top, say, in the uppermost 0.01 percent (now about 14,000 households, each with $5.5 million or more in income last year).

From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000.

President Ronald Reagan signed tax bills that benefited the wealthiest Americans and also gave tax breaks to the working poor. President Bill Clinton raised income taxes for the wealthiest, cut taxes on investment gains, and expanded breaks for the working poor. Mr. Bush eliminated income taxes for families making under $40,000, but his tax cuts have also benefited the wealthiest Americans far more than his predecessors' did.

The Bush administration says that the tax cuts have actually made the income tax system more progressive, shifting the burden slightly more to those with higher incomes. Still, an Internal Revenue Service study found that the only taxpayers whose share of taxes declined in 2001 and 2002 were those in the top 0.1 percent.

But a Treasury spokesman, Taylor Griffin, said the income tax system is more progressive if the measurement is the share borne by the top 40 percent of Americans rather than the top 0.1 percent.

The Times analysis also shows that over the next decade, the tax cuts Mr. Bush wants to extend indefinitely would shift the burden further from the richest Americans. With incomes of more than $1 million or so, they would get the biggest share of the breaks, in total amounts and in the drop in their share of federal taxes paid.

One reason the merely rich will fare much less well than the very richest is the alternative minimum tax. This tax, the successor to one enacted in 1969 to make sure the wealthiest Americans could not use legal loopholes to live tax-free, has never been adjusted for inflation. As a result, it stings Americans whose incomes have crept above $75,000.

The Times analysis shows that by 2010 the tax will affect more than four-fifths of the people making $100,000 to $500,000 and will take away from them nearly one-half to more than two-thirds of the recent tax cuts. For example, the group making $200,000 to $500,000 a year will lose 70 percent of their tax cut to the alternative minimum tax in 2010, an average of $9,177 for those affected.

But because of the way it is devised, the tax affects far fewer of the very richest: about a third of the taxpayers reporting more than $1 million in income. One big reason is that dividends and investment gains, which go mostly to the richest, are not subject to the tax.

Another reason that the wealthiest will fare much better is that the tax cuts over the past decade have sharply lowered rates on income from investments.

While most economists recognize that the richest are pulling away, they disagree on what this means. Those who contend that the extraordinary accumulation of wealth is a good thing say that while the rich are indeed getting richer, so are most people who work hard and save. They say that the tax cuts encourage the investment and the innovation that will make everyone better off.

"In this income data I see a snapshot of a very innovative society," said Tim Kane, an economist at the Heritage Foundation. "Lower taxes and lower marginal tax rates are leading to more growth. There's an explosion of wealth. We are so wealthy in a world that is profoundly poor."

But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators. Speaking of the increasing concentration of incomes, Alan Greenspan, the Federal Reserve chairman, warned in Congressional testimony a year ago: "For the democratic society, that is not a very desirable thing to allow it to happen."

Others say most Americans have no problem with this trend. The central question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who served in the Reagan and George H. W. Bush administrations. "As long as people think they have a chance of getting to the top, they just don't care how rich the rich are."

But in fact, economic mobility - moving from one income group to another over a lifetime - has actually stopped rising in the United States, researchers say. Some recent studies suggest it has even declined over the last generation.

OK House and Senate Pass Tax Cuts

The Oklahoma House passed HB1547 and the state Senate passed SB435. The major piece of HB 1547 was the reduction in the top state income tax rate. HB1547 lowers the top tax rate from 6.65% to 6.25%. An analysis by the Community Action Project of Tulsa County shows that this reduction 1) benefits the top 5% of wage earners the most and 2) does not guarantee any positive impact on Oklahoma's economic growth.

full report:                                                                                                                               “Is Lowering Oklahoma’s Top Income Tax Rate What the State Needs?”

Oklahoman Series: Paycheck to Paycheck

The Oklahoman is doing a series of articles highlighting the difficulty that many Oklahomans have making ends meet.                                                                              

Link

TABOR

Sigh. Oh boy. From the Oklahoman:

State spending plan proposed

By Ryan McNeill
The Oklahoman

A pair of conservative-oriented think tanks are proposing a plan they say would control Oklahoma's spending and encourage economic development.

A study called "A Taxpayer's Bill of Rights" was released Wednesday at the state Capitol by the Oklahoma Council of Public Affairs and the Americans for Prosperity Foundation. It questions the growth of state spending during the last decade, saying the plan would limit government growth and return surplus money to taxpayers.

Sen. Randy Brogdon, R-Owasso, said he will introduce legislation proposing a constitutional amendment that would implement the plan, similar to one in place in Colorado. It would limit annual government growth to the rate of population growth plus inflation.

"State government should not grow faster than the family budget," Brogdon said during the news conference.

Surplus revenue would go into the state's Rainy Day Fund, and some would be returned to taxpayers, according to a written release.

Moynihan on Social Security

From the New York Times May 30th 2000.

Building Wealth For Everyone

by Daniel Patrick Moynihan

Social insurance began in Europe, principally in Germany in the Bismarck era. In 1911, Winston Churchill carried unemployment insurance in the House of Commons, representing the Liberal government. The Tories opposite said the workers would spend the money on drink; Churchill said it was their money. Whereupon a first principle was established.

The American Association for Labor Legislation, an academic group, was established in 1906. Workers' compensation laws began to appear. Soon, in Albany, Al Smith and Robert F. Wagner brought us "mothers' pensions" and the like.

In the 1930's, for the first time we enacted national legislation providing unemployment insurance, an old-age pension to be known as Social Security, and a mother's pension, Aid to Families with Dependent Children. The first two programs were presented as contributory insurance. I knew Frances Perkins, who was then the secretary of labor, and have talked with one of the experts involved, Luther H. Gulick of Columbia University. Both would go on about Franklin Roosevelt's insistence that each worker have a separate account, like a bank account. His or hers. As F.D.R. put it to Gulick, so that "no damn politician can ever scrap my Social Security program." (Observe that A.F.D.C. was not contributory. Soon it became known as "welfare," and it was repealed in 1996.)

President Eisenhower brought us disability insurance, expanding workers' compensation. Then came President Johnson with Medicare, a contributory health insurance plan, and Medicaid, a welfare measure. A once-a-generation sequence had evolved.

And now we have the opportunity for a grand culmination, starting this century with a system of voluntary, contributory savings plans such that Americans will end their working lives with a measure of wealth. An estate. And for the first time, an American idea!

A bit of background. In 1977, Social Security, the retirement program, was changed from a pay-as-you-go system to a partially funded system. The revered Robert J. Meyers, who was present at the creation in 1935 and still analyzes Social Security financing, records, "The underlying financing mechanism was to build up a reserve." No one noticed this. I was a member of the 1977 House-Senate Conference Committee that enacted the law, and I surely didn't notice. Nor was it reported.

We added two percentage points to the F.I.C.A. tax -- Federal Insurance Contribution Act -- such that today some 80 percent of American households that pay this tax pay more in Social Security than in income taxes. In time, larger Social Security surpluses appeared, enough to moderate the even larger federal budget deficits of the 1980's, and then to bring us into the overall budget surplus of today.

Now here is the point. If we will make a few, admittedly difficult but wholly defensible changes in the existing program, those two extra percentage points won't be needed. Workers could take back their half -- the employer keeps the other half -- or could choose to invest the two percentage points in a personal savings plan modeled on that available to federal employees since 1987. Let the magic of compound interest work its magic.

Here are the main changes.

Use an accurate cost-of-living adjustment. The consumer price index overstates inflation by about eight-tenths of a percentage point, even after recent improvements made by the Bureau of Labor Statistics.

Next, provide normal taxation of benefits, which are now only partially taxed. Then extend coverage to all newly hired state and local workers, a quarter of whom don't pay into Social Security from their primary earnings but get benefits through part-time jobs.

Finally, increase the number of years counted in computing benefits from 35 to 38. Of a sudden you are in 75-year actuarial balance and don't need those two percentage points of payroll taxes.

On March 18, 1998, Senator J. Robert Kerrey and I introduced the Social Security Solvency Act, with these benefit adjustments and a provision for a "voluntary investment of payroll tax cut by employees." In 1999 it became the Social Security Solvency Act of 1999, the first Senate bill introduced in the 106th Congress other than those reserved for the two leaders. We also included Senator Kerrey's proposal to provide every child with a nest egg of $3,500: $1,000 at birth and $500 on each of the child's first five birthdays.

With respect, this is where the coming presidential debate should begin. The numbers add up; they are from the actuaries at Social Security. There are some tricky details, including a far-off increase in retirement age. (But note that now most folk, 76 percent, retire before reaching 65, the so-called normal retirement age.) And of course the main debate will concern the personal savings accounts.

It would be unforgivable to label this "privatization." But it has already begun. These savings accounts are being referred to in New York Times reporting as "partial privatization."

The term goes back to the presidential campaign of 1964, in which Barry Goldwater made an offhand remark that Social Security should be made voluntary. In the definitive study, "Policy Making for Social Security" (Brookings, 1979), Martha Derthick explained that though the remark was "not the party's position and not even clearly the candidate's position," it was "transformed by media coverage and the ridicule of rival candidates (including other candidates for the Republican nomination) into a symbol of Goldwater's radical conservatism." As such, she wrote, "it figured conspicuously in the campaign."

Doris Kearns Goodwin, a distinguished historian of the period, recently described a Democratic ad of that campaign depicting scissors cutting a Social Security card in half.

The charge is hurled at every opportunity. Establishing personal savings accounts is described as turning Social Security over to Wall Street. Dock workers would become day traders. A market downturn could wipe out benefits.

The latter charge is obscene. The present progressive retirement benefit is fixed in our bill. There is no occasion to touch it. We add a savings plan modeled on the Thrift Savings Plan for federal employees, including senators. The government matches up to 5 percent of an employee's pay. The money is invested, at the employee's choice, in one of three plans, ranging from government bonds to a stock index fund. The employee can switch around from time to time. If there is an element of risk even in a 40-year stretch, at no time are basic Social Security benefits at risk. Those are funded and solid, just as they are today and have been for 60 years.

The Thrift Savings Plan was essentially an adaption for federal workers of various retirement plans, principally the 401(k), as it is known, which were passing the tax committees in the 1970's and 1980's. In the Senate it emerged from the Government Affairs Committee. Al Gore, then a senator and a member of the committee, said on July 30, 1985, "An employee savings plan with government matching funds will give every worker the opportunity to supplement a defined and predictable pension amount." He praised a Congressional Research Service report, "Civil Service Retirement: Capital Accumulation Plans for Federal Employees."

A parallel arrangement under Social Security would, at a 7 percent non-inflation-adjusted rate of return, provide an average worker (making $30,000 a year), with $350,000 of savings at the end of 45 years. A measure of wealth.

In 1944 the British came up with the slogan of "cradle to grave" protection. We propose something beyond: an estate! For doormen, as well as those living in the duplexes above.

Krugman on Social Security

From the NYT

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. Nonetheless, the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it.

I'll have a lot to say about all this when I return to my regular schedule in January. But right now it seems important to take a break from my break, and debunk the hype about a Social Security crisis.

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire.

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

It's true that the federal government as a whole faces a very large financial shortfall. That shortfall, however, has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security.

But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government.

If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice.

But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.

The New Economics of Being Young

The Village Voice has an interesting series of articles on the economic realities facing young people.

Social Insecurity

A recent survey found that young people are more likely to believe aliens will land on earth someday than to believe that Social Security will be there for us in retirement. Now that President Bush has vowed to make the privatization of Social Security a major priority of his second term, retiring to another planet may not be such a bad idea.

W.'s plan involves diverting payroll taxes of current workers into private accounts. Using these personal investment portfolios, the workers will then try to beat the market. Taking these taxes out will mean a cut in future guaranteed benefits from the government. Independent analysts estimate that this approach will reduce federal revenue by up to $2 trillion in the next decade, a loss that will be made up in the short term by borrowing even more on top of the nation's already record deficits, and emptying the Social Security "trust fund" even faster.

Against this uncertain backdrop, the first of the baby boomers will retire in 2008. Their working lives have been marked by record-high divorce rates, the epidemic of downsizing, relentlessly rising bankruptcy rates, the explosive growth of household debt, and current savings rates at the levels of the Great Depression. Their adult children in Generation Debt are understandably nervous about their parents' security—and by extension, their own.

The Ambition Tax

The average collegian in the U.S. isn't graduating into a world of boundless opportunity, but rather is $20,000-plus in the hole thanks to student loans and credit cards. So begins the snowball effect: The most desirable entry-level jobs often pay wages too low for the indebted, who must fork over a large percentage of their salaries to Sallie Mae or Citibank. Other posts are reserved for those who can afford to work unpaid internships, or whose parents can support them through an extra year or two of graduate studies.

Employers are increasingly reluctant to defray the cost of health care, so tack on an extra several hundred bucks a year, even $2,000 or more for the technically self-employed—"permanent temps," as the saying goes. Though housing is supposedly cheaper than ever, due to record-low interest rates, the ambitious young aren't necessarily enjoying the trend. Rents in many metro areas, where a good portion of knowledge-based jobs are located, remain sky-high; cheaper digs exist in the suburbs, though that means enduring sarariman-like commutes.

High levels of debt preclude the young from getting the sweetest mortgage deals, and they often end up in the clutches of sub-prime lenders. On average, people who had to borrow their way to a graduate degree are already behind $45,900; median debt for grad students has increased 72 percent since 1997. (Aspiring doctors have it the worst, with average loans of $103,855.) Add to those obligations an investment in a humble bungalow, and you're on the hook for a quarter million or more—not counting interest.

The cumulative effect is that merely keeping one's head above water, rather than getting ahead, has become the top priority for Americans between the ages of 18 and 34. Pursuing the relatively modest dream of doing better than the generation before requires serious capital—up front in the form of tuition and loans, and hidden in the form of lost opportunities. Call it the ambition tax—the money you've got to pony up if you want a college degree and a shot at middle-class bliss. But it's really more of a gamble, as there's no guarantee those tens of thousands of dollars will get you where you want to go.

"The next generation is starting their economic race 50 yards behind the starting line," says Elizabeth Warren, a Harvard Law School professor and author of The Two-Income Trap. "They've got to pay off the equivalent of one full mortgage before they make it to flat broke, in order to pay for their education. They can never get ahead of the game, because they're constantly trying to play catch-up.

"And once you've got accumulated debt, the debt takes on a life of its own. It demands to be fed, and it takes that first bite out of the paycheck. And it means the opportunity to accumulate a little, to get a little ahead, to maybe put together a down payment—it's just never there. It's just staggering to me that this is not a part of our national debate right now."

Bush Adviser Warns of Social Security Cuts

Link: The New York Times > Washington > Bush Adviser Warns of Social Security Cuts.

IDEA FOR CONGRESS: SAVINGS REFORM by Mickey Hepner

Just after the new year, the 109th U.S. Congress will convene in Washington, D.C. With tax cuts, Social Security reform and the war on terrorism, there are plenty of issues to keep them busy. However, I hope they spend some time helping middle-class families save money.

Currently, there are numerous savings plans that receive preferable tax treatment (IRAs, Roth IRAs, 401k, 403b, 457, 529, SIMPLE, KEOGH, Coverdell ESAs, etc.). For some plans, contributions are tax deductible. Some plans allow penalty-free withdrawals of contributions. All of these plans, however, restrict the use of funds in some way.

This smorgasbord of savings plans--each with its own rules--leads to unnecessary complications. Consider the decisions of a young worker in her twenties. If she saves in a retirement account other than a Roth IRA, she cannot touch her savings until she reaches the age of 59 1/2...more than thirty years away! She will give up access to her money today for the ability to spend it in thirty years. If she doesn't live that long she gives up the money forever.

Consider the decisions of a middle-class family that wants to save money for their children to attend college. However, if a family member becomes seriously ill the family will want to have access to the funds to pay for health care needs. Yet, college savings funds are only allowed to be spent on college.

We should make it both easy and profitable for people to save. I propose that we:

1. Combine all the tax preferred savings plans into one plan with one set of rules--I call them Individual Savings Accounts (ISAs).

2. Allow individuals to contribute up to $20,000 per year to their ISA. This is similar to what is allowed under current law.

3. All contributions and earnings would be tax deferred until the time of withdrawal. Like IRAs and 401k plans, savers would receive an immediate tax benefit.

4. Allow withdrawals at any time, and for any reason, without a penalty. Most withdrawals would be taxable, however. Essentially, you pay taxes when you choose to spend the money.

5. Allow tax-free withdrawals for health care or education expenses.

There are numerous benefits to such a plan. First, it is much simpler than the current system. Instead of numerous programs, with numerous rules, there would be only one program with one set of rules. And, these rules are simple. You spend money...you pay more taxes. You save money...you pay less taxes.

Second, this proposal gives savers more control over their finances. Young workers will know they get the tax benefit from saving...but will also have access to their funds if they need them. Families will know that they can save for college, and not be penalized if healthcare emergencies arise.

However, there is a third, even more subtle benefit. By not taxing savings, and taxing the money when it is spent, this proposal works like a consumption tax--which many conservatives (and economists) advocate. Savings are the fuel for economic growth. Savings turn into business investment, which leads to economic growth and higher wages. By rewarding people for saving, we foster economic growth.

Unlike a national sales tax, though, this proposal works within the current  income tax structure. A national sales tax--which some advocate--would effectively raise taxes on the middle-class and decrease them for the wealthiest families. In contrast, my proposal creates a consumption tax that helps the middle-class families...not harm them. The wealthiest individuals will still be able to shelter some income, but they will not get a tax break on the backs of middle-class families.

This proposal simplifies the tax code, rewards savings, helps middle-class families afford education and health care, and stimulates the economy. Workers work hard for their money. They should be able to decide how to save money with as few hassles as possible. If Congress adopts this proposal, middle-class families will be able to do just that.

-- Mickey Hepner