Campaigning in Iowa, Herself proposed to establish a new vehicle for deferring taxes. It’s called an “American Retirement Account,” and details on this are very light. I’ll assume they’re an expansion of the Roth IRA and 401(k) ideas, with the proviso that the devil is in the details. I’m in favor of anything that allows people to defer taxes, since that means that we get the benefits of compound interest instead of the bond-market investors who lend money to fund the Federal deficit.

We have to be careful not to read too much into this proposal. The She-Clinton has learned well (or at least her advisers have) the Zen of Economic Policy Proposals. There are so many missing details that one has to suspect the whole statement is being made only for political effect, a thing that Bill Clinton did many times. And it’s a good strategy, since campaigning on an immediately-forgotten middle-class tax cut had a lot to do with putting him in the White House.

The reason this is worth following through is to discern the outlines of Mrs. Clinton’s overall policy strategy, which seeks to entrench and consolidate Federal power by establishing middle class entitlements.

Ok, so on to the details. From the Bloomberg report:

Americans would be allowed to contribute as much as $5,000 in tax-deferred funds each year to the “American Retirement Accounts,” Clinton said. Depending on household income levels, the government would then offer tax credits of as much as $1,000.

People would be able to take their accounts with them if they leave their jobs, according to the plan, which carries an estimated cost of $20 billion to $25 billion a year. Campaign officials said they believe companies will compete to administer the accounts, and Americans would also have an option similar to the retirement savings plan available to members of Congress.

To help pay for the plan, the New York senator said she would freeze the estate tax at 2009 levels, when it will only affect couples with assets of more than $7 million. President George W. Bush’s 2001 tax-cut program has gradually reduced the estate tax and it is scheduled to be repealed for a year in 2010 unless Congress acts.

Evidently, Rodham noticed that 401(k) plans are pretty popular. What she wants to do is create an incentive for everyone, including people whose employers don’t sponsor 401(k)s, to get in on the action.

Hence the idea of a $1,000 credit against your taxes, payable directly into the new accounts.

Now one would think this idea departs from Progressive ideological purity in that most of this money will find its way into the financial markets. Oh, and the same fund managers who put the money to work will also be making fees from it, which was a no-no for Democrats when we were talking about privatizing Social Security.

But the real point is to extend the expectation of money “gifts” from the government far up into the middle class. The yearly $1,000 payment is available to households with income up to $60,000, with smaller payments for households up to $100,000.

As with Social Security, the genius of the idea is to cement in people’s minds that payments from the Federal government are a fundamental part of how they provide for their families’ needs.

Now you might immediately think that it would be better for people at these middle income levels to just get a reduction in marginal tax rates (which would be far more economically productive).

But keep in mind that middle-class people today pay a very small share of all Federal taxes. And under all of Clinton’s proposals, you can expect their share to drop still further.

This makes government a very sweet deal for an ever-larger percentage of Americans. Just as with the Democrats’ various health-care proposals, the idea is to obtain some social goal at the expense of freedom and economic efficiency.

Ever since the New Deal, Americans have been happy to make this trade, and it’s politically unrealistic to suppose we can roll the clock all the way back. But note that we’re now the only large developed country that is moving in the direction of more socialism, rather than less. The Europeans, who invented many of the ideas that Senator Clinton would like to advance here, are now moving away from socialism, toward flatter tax regimes and lighter regulation of businesses. Why? Because that increases material well-being.

Let’s also take note of two other points that Clinton made in her speech:

The former first lady also spoke about Social Security today, saying she has a “fundamental commitment” to the program. “We’ve got to fight and finally bury the idea of privatizing Social Security,” she said.

Translation: “Let’s destroy the idea that people might actually be good at planning their own financial futures.” Why? BECAUSE IT MIGHT BE TRUE. Personal and economic freedom, because of their myriad beneficial effects, are the most dangerous threat to the ongoing project of expanding the Federal power.

And finally: the bizarre $5,000-per-baby idea is now officially off the table. Again and again, we will be seeing Senator Clinton making economic policy in an ad-hoc and reactive manner, just as her husband did. This makes blatantly clear that, apart from the total lack of leadership, the objectives are political and not economic.

When Senator Clinton comes to you bearing gifts of other people’s money, your response should be just as it would to a total stranger:

Hey, lady, don’t do me any favors!