Friday, September 09, 2011

Social Security and Tax Increases

If you asked Robert Reich, "Do you believe Social Security should be a form of insurance or a social welfare program," this editorial suggests that his answer would be "yes". That's not entirely unreasonable, given that Social Security does have aspects of both: It's an insurance program for workers, helping in the event of disability and providing a return on money paid into the system that's based in part upon the amount you pay in. But it's also a social welfare program that provides a much better return to workers at the low end of the income scale than those who make the largest contributions.

Reich proposes that Social Security can be made solvent for the longer term, as Reich proposes, by increasing the ceiling for payroll taxes from $106,800 to $180,000. But beyond economic viability, the taxpayers who would be hit hardest by that increase are among those whose support is needed in order to ensure Social Security's long-term political viability. The more money you take from higher wage earners to pay for Social Security, the less appealing it becomes to them.  And while few cry bitter tears for households earning enough to be hit by that increase, it is fair to observe that it would be yet another example of tax policy that has no appreciable impact on the wealthy but disproportionately affects working professionals.

My concern with this type of proposal remains that if you shift public perception of Social Security away from that of a program that guarantees a basic safety net to all workers, and toward "just another welfare program," you'll undermine support for the program and thereby upset its long-term political viability. Reich should consider for a moment that, even though every commentator from left to right found the metaphor to be inane, the New York Times treated as serious the question, "Is Social Security a Ponzi Scheme?"

What about something other than a tax increase? What if, for example, we were to implement policies that buttress and expand the middle class? Frankly if we've given up on that, we are admitting that our economy has systemic problems that cast doubt on whether even raising the payroll tax ceiling will create the sustainability that Reich predicts.

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