Paul Ryan's Freaky-Good Plan for Making America Solvent, Forever

From Ace:

The only plan which actually saves our entitlement programs.

To make the economy -- on which all else hinges -- hum, Ryan proposes tax reform. Masochists would be permitted to continue paying income taxes under the current system. Others could use a radically simplified code, filing a form that fits on a postcard. It would have just two rates: 10 percent on incomes up to $100,000 for joint filers and $50,000 for single filers; 25 percent on higher incomes. There would be no deductions, credits or exclusions, other than the health-care tax credit (see below).

The whole thing is good. Entitlements can be saved by acknowledging the obvious -- that people live longer, and have longer productive careers -- than they did in the 30's, when most people would die before or shortly after hitting age 65. The plan keeps entitlements untouched for current retirees, and those retiring over the next ten years, but then slowly escalates the age at which benefits can be taxed over a number of years, until it finally hits 70.

And that right there fixes it all -- politically, there's no fallout, or very little, because current and soon-to-be seniors see absolutely no changes at all, and the rest of us, depending on our age cohort, will get those benefits at 66, or 67, or, for very young people who will probably end up living until 100, age 70.

Since younger people are mostly concerned these benefits won't exist for them at all, so they're basically having money extracted from them only for other people, I think they'd respond well to a system that guaranteed their benefits... just later than age 65. Later than age 65 is better than "never."

My only quibble is with dropping the cap-gains tax to 0%. I know this is something of a conservative Holy Grail, but I disagree with it on policy grounds and political grounds.

Politically, it's awful, especially with the current populist/bash the fat-cats mood of the country. I don't think people like the idea that their busting-my-ass-for-the-man income gets taxed while a wealthy investor's investment income doesn't. You can make a lot of arguments about a 0% tax rate spurring the economy and so on, but I don't think most of the public goes in for such indirect-benefits arguments; I think they focus on the immediate. And in the immediate, their labor is being taxed, and someone's investment income isn't, and they don't like that.

On policy grounds, making such a sharp distinction between cap gains and ordinary income, with huge tax consequences flowing from the act of categorization, will prompt, as it always does, a lot of tax avoidance schemes wherein straight income can be kinda-sorta argued to be some kind of capital gains income. (It's not always clear which is which, or at least it wasn't always clear to me when I took Federal Tax Policy in law school -- but then, maybe I just didn't study that section hard enough.) Which then prompts more and more rules and regulations to properly categorize the two, which is precisely what a system going for streamlined simplicity doesn't need.

I see this more as an initial bargaining position to make the cap gains tax lower, but not actually at 0%.

And then there's all this great stuff:

Universal access to affordable health care would be guaranteed by refundable tax credits ($2,300 for individuals, $5,700 for families) for purchasing portable coverage in any state. As persons younger than 55 became Medicare-eligible, they would receive payments averaging $11,000 a year, indexed to inflation and pegged to income, with low-income people receiving more support.

Ryan's plan would fund medical savings accounts from which low-income people would pay minor out-of-pocket expenses. All Americans, regardless of income, would be allowed to establish MSAs -- tax-preferred accounts for paying such expenses.

Ryan's plan would allow workers younger than 55 the choice of investing more than one-third of their current Social Security taxes in personal retirement accounts similar to the Thrift Savings Plan long available to, and immensely popular with, federal employees. This investment would be inheritable property, guaranteeing that individuals will never lose the ability to dispose of every dollar they put into these accounts.