By Erik Wasson - 05/10/11 03:09 PM EDT
It looks moderate in comparison to the Heritage plan.
The foundation plan income-adjusts Social Security benefits immediately, reducing them for higher income earners to zero after a transition period. The reductions would affect couples making more than $110,000 per year.
Eventually, Social Security would be a flat benefit for all those qualified of $1,200 per month — about $250 per month above the poverty line.
Whereas the House budget phases in Medicare vouchers after 2021, the Heritage plan does so after five years and phases out the government contribution based on income.
Whereas the House plan block grants all of Medicaid, Heritage coverts long-term and disabled care into a block grant. It goes further by turning the rest of Medicaid into a voucher system.
One of the traditional objections to doing this is the worry that many Medicaid recipients will be unable to navigate the private insurance market.
“That underestimates the ability of American to chose,” Heritage scholar Stuart Butler said.
Butler acknowledged that seniors will pay more out of pocket for their healthcare under the Heritage plan but said consumer choice will drive down costs greatly and the plan contains guarantees that seniors will not be bankrupt.
He said the plan will aid the U.S. conversation about the deficit by addressing the issue of whether baby boomers have a contribution to make to the effort.
The Heritage plans for the tax code are also far-reaching. Under the plan, the individual and corporate tax rates would all be about 27 percent.
The plan would eliminate the payroll tax and also eliminates takes on investment.
The top marginal individual income tax rate is now 35 percent and individuals pay 15 percent payroll tax on top of that. The lowest marginal income tax rate is 10 percent. The corporate tax rate is 35 percent.
Under the Heritage plan, the U.S. would adopt a territorial tax system and corporations would only have their domestic net receipts taxed.
The tax code is simplified and deductions are retained only for education spending, gifts, charity and home mortgage interest.
Asked if the flat tax will result in a massive transfer of wealth from low-income workers, who generally have little investment income, to the very rich, Heritage scholars noted that there are anti-windfall provisions in the plan to safeguard against the rich receiving a massive transfer under the plan.
They also note that investment income that is consumed rather than reinvested would be taxed. Additionally, the elimination of the payroll tax and a healthcare tax credit, which replaces Obama’s health plan, help low-income workers, they said.
Heritage predicts that under its plan unemployment will reach 5.2 percent within 10 years. It is preparing alternative analysis under a dynamic growth model that can be expected to result in higher growth predictions and lower unemployment, however.