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Jewish World Review May 8, 2001 / 15 Iyar, 5761

Michael Barone

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Consumer Reports

Delay the golden years



On the right and the left there is a call for later retirement

http://www.jewishworldreview.com --
AMERICANS should work more. That is the conclusion of one of the most creative thinkers on the political left, William Drayton. During the Carter administration, Drayton helped think up the idea of pollution credits. For 20 years he has headed Ashoka, a group that encourages public-policy entrepreneurs abroad. Now he is turning his eyes on the United States and sees, despite record low unemployment, millions of people who could and would like to work, but aren't. They include older people who would like full- or part-time work, stay-at-home mothers who want part-time jobs, seasonal workers who want full-time jobs, people with disabilities who would like suitable work. Altogether, he counts over 70 million potentially available workers–more than half the 135 million full-time workers today.

How to get America working (the title of Drayton's group)? He would eliminate the 15 percent payroll tax, the proceeds of which are designated for Social Security and Medicare, and substitute taxes on consumption or on natural resources. Scrapping the payroll tax would make it cheaper for employers to create new jobs, especially low-wage jobs. What's more, payroll-tax receipts do not grow as fast as the economy, which means that in about a generation they will no longer pay for Social Security and Medicare entitlements. Drayton would break the nexus established by Franklin Roosevelt between the payroll tax and benefits, because he believes that it will be broken anyway.

Here is a possible convergence of political right and left. Democrats have been calling this year for a payroll-tax cut. The Social Security commission President George W. Bush appointed last week is charged with sculpting specific proposals to fulfill Bush's campaign promise of making individual investment accounts part of Social Security. That is likely to mean some decrease in payroll taxes going to the government. This would partly sever the link between the payroll tax and benefits, leaving it open to being completely severed later.

Demand curve. Some things have already been moving in Drayton's direction. The Republican Congress succeeded in cutting the tax on earnings of retirees 65 to 69 years old–an incentive to work. Though many don't realize it, the Social Security retirement age is scheduled to rise, starting in 2003, to 66 in 2009 and 67 in 2027–a disincentive to retire. In the 1990s, people began opting for later retirement–a trend that validates poll results showing that many retirees would like to work–and fewer people move to retirement communities when they do leave their jobs. Meanwhile, in places where unemployment is very low, employers have found ways to lure people into the workforce. Fast-food restaurants hire the elderly, telemarketing firms train housewives, meatpacking plants attract immigrants from Mexico. The workforce, Drayton points out, expanded 35 percent in two years when workers were needed during World War II, and in many places it is being expanded today. It could be expanded more.

An America with a much larger number of working people would be an America much more prosperous and creative, more even than the prosperous 1980s and '90s; one thinks of Ronald Reagan's old saying, "You ain't seen nothing yet." It would also be an example for the rest of the world. For years population growth seemed a terrible problem; entrepreneurs like Warren Buffett and the late David Packard left most of their fortunes to stopping it. But in most advanced countries today, the problem is the oppo- site: population implosion. Nicholas Eberstadt of the American Enterprise Institute, analyzing a February 2001 United Nations Population Division report, points to a "profound and pervasive" aging of populations. Birthrates are well below replacement levels in most of Europe, Russia, Japan, Australia, and New Zealand. In Western countries, "under current patterns, all other things being equal, each generation would be 25 percent smaller than the one before it," Eberstadt writes. "Indefinite population decline becomes an entirely plausible prospect."

The United States is not likely to suffer this population decline, because it has higher birthrates and higher immigration than other advanced countries. But in Europe, population decline will have disastrous results. As the ratio of workers to retirees sinks toward 1 to 1, generous European welfare states will become unsustainable and European economies may well shrink. Nor are they likely to augment their numbers with immigrants, for they are much less open to immigration than the United States: Immigrant bashing is widely heard in the campaigns now going on in Britain and Italy. The only solution is Drayton's: Get more people to work.

Bush's Social Security Commission is supposed to present its recommendations by fall, with a view to legislative action in 2002. The panel surely will not recommend replacing the payroll tax. But enactment of Bush's Social Security package or something like it–still a very big if–would clear the way for convergence between conservatives who urged a consumption or flat tax in the 1990s and liberals like Drayton who want to replace the payroll tax with a consumption or natural-resources tax.

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JWR contributor Michael Barone is a columnist at U.S. News & World Report and the author of the biennialAlmanac of American Politics. Send your comments to him by clicking here.

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©2001, Michael Barone