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Ex post social insurance

Summary:
Greg Mankiw has an idea: Let’s send every person a check for X dollars every month for the next N months. In addition, levy a surtax in 2020 (due in April 2021) equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019. Under this plan, a person whose earnings fall to zero this year returns none of the social insurance payments. A person whose earnings fall by half keeps half of the payments. A person whose earnings remain the same returns everything: They will have just gotten a short-term loan. And those lucky few whose earnings rise this year will return more than they got. Of course, there is an implicit marginal tax rate in this scheme. Every dollar of earnings in 2020 faces an additional marginal tax rate of N*X/Y2019. There is

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Greg Mankiw has an idea:

Let’s send every person a check for X dollars every month for the next N months. In addition, levy a surtax in 2020 (due in April 2021) equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019.

Under this plan, a person whose earnings fall to zero this year returns none of the social insurance payments. A person whose earnings fall by half keeps half of the payments. A person whose earnings remain the same returns everything: They will have just gotten a short-term loan. And those lucky few whose earnings rise this year will return more than they got.

Of course, there is an implicit marginal tax rate in this scheme. Every dollar of earnings in 2020 faces an additional marginal tax rate of N*X/Y2019.

There is more at the link.

The post Ex post social insurance appeared first on Marginal REVOLUTION.

Tyler Cowen
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen and Tabarrok have also ventured into online education by starting Marginal Revolution University. He currently writes the "Economic Scene" column for the New York Times, and he also writes for such publications as The New Republic, the Wall Street Journal, Forbes, Newsweek, and the Wilson Quarterly.

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