Tuesday, April 26, 2011

Social Security a Tax?

Krugman let slip a little semantic misconception 75 years in the making:
And while the income tax is quite progressive, the payroll tax — the other major federal tax — isn’t; and state and local taxes are strongly regressive.

For generations it was sold as a pension, not a tax. The 12.4% of our compensation (up to $106k) given to the government under the rubric of Old-Age, Survivors, and Disability Insurance (OASDI) [insurance?], is clearly not an investment in our future government pension, unless by 'our' one means 'the Borg collective', not the individual saver.

I suppose soon people are going to start noticing there is nothing in the Social Security trust fund. Here's a funny description of the trust fund over at 'Just Facts':

Bonds that represent the debt that the U.S. government owes to Social Security are located in a file cabinet at the Bureau of Public Debt in Parkersburg, West Virginia. Below is a photo of President George W. Bush inspecting the documents along with Susan Chapman of the Office of Public Debt Accounting.


9 comments:

Jeb said...

I hope some liberal Hollywood producer will read this, and we can count on a thriller centered around someone stealing this filing cabinet - Sean Penn playing the gritty FBI agent who saves the day...

Anonymous #5 said...

Ah yes, the mask slips. The term "payroll tax" is pretty Orwellian, because if you think about it, it's actually a... tax... wait a second...

Or is the idea that Krugman invented the term "payroll tax"? Five and a half million hits on Google already.

David Merkel said...

And, Krugman fails to note that on an after tax basis, the benefits are even more regressive than the tax.

I don't know why anyone pays attention to Krugman -- he is a hack.

Patrick R. Sullivan said...

'...because if you think about it, it's actually a... tax... wait a second...'

Yes, let's do just that. Does one earn a compensating benefit when one pays income taxes? You do when you pay payroll taxes...in fact, they seem to resemble pension contributions in that regard.

Eric Falkenstein said...

it's a tax posing as old age insurance, where payouts to old people made its presentation tenable when demographics were favorable, but going forward will have to be abrogated because it it's just a bankrupt ponzi scheme. When the government renegs on this and other off-balance sheet liabilities, the economy will be in big trouble. Often politicians have claimed this as pure insurance, as opposed to revenue to the general fund, and today many still state it is fully funded.

Anonymous #5 said...

Social Security went into crisis in the 1980s. At that point Reagan and Greenspan got together and raised the payroll tax and reduced benefits.

I guess I don't understand what is so complicated about this. Social Security is a political arrangement. People pay taxes and receive benefits in accordance with what they pay in. There is nothing enforcing this legally, so in theory politicians are free to decide that someone who pays payroll taxes their entire life will get nothing when they retire. That seems relatively unlikely to me because old people have a lot of political power. The term "payroll tax" is several decades old and has nothing to do with current economic conditions. If you really believe that Social Security is just a bankrupt Ponzi scheme, then you must also believe that Paul Krugman the Stupid Evil Hack With a Bitch Wife That No One Should Pay Attention To is 100% correct in pointing out that our tax system is rather regressive in many respects. If instead you believe that Krugman is a moron for not understanding that Social Security benefits are regressive in nature, then as a matter of consistency you should talk about who benefits from government spending, which is really an entirely different conversation.

I guess either way, Krugman is dumz.

Anonymous said...

The corrolary to the Trust Fund being a fiction is that the insolvency problem is also a fiction.

Patrick R. Sullivan said...

Anon #5, before he resigned from the economics profession, Krugman wrote both that SS was a Ponzi scheme and that the SS trust fund was 'something of a joke'.

Maybe that's what Landsburg had in mind when he said that it was amazing how much economics Krugman had to learn to win the Nobel prize and equally amazing how much economics he had to forget to write for the NY Times.

Anonymous #5 said...

Again, I don't see why this is such a magical mystery. Social Security is a great deal for someone who is a retiree when it starts. It becomes a worse deal over time. If you have a steady-state population that reproduces at replacement level rates, it's a mediocre deal. When you get to the last generation on the planet, it's a horrible deal. It's possible that you guys have some information that I'm lacking -- tell me, is the world going to end sometime soon?