A Stitch in Haste

I’ll give the Christian Science Monitor credit: they are probably the most honest proponents of the “Penny in Your Pocket Rule” I’ve seen to date:

[T]he income gap between the rich and poor in the United States has gotten wider again. A reformed Social Security could help readjust that balance.

It's unclear whether President Bush's plan will do that. But Social Security could be altered to accomplish that goal, says Robert Shiller, an economist at Yale University. He frets that the growing rich-poor gap "is going to fester eventually. It will be a source of resentment."

So he suggests that both the federal income tax and Social Security be indexed so that any growth in this income gap be offset by raising the progressivity of the tax and retirement systems.
...
A more modest proposal would be to raise the level of earnings subject to the Social Security tax. Currently, the system taxes only the first $90,000 of income, while a growing number of Americans earn more. In 2001, for example, 15 percent of Social Security contributors made more than the taxable earnings maximum, up from 10 percent in 1983.

Some hasty stitches:

--Why is it fair to talk about the uneven distribution of income but not the uneven distribution of the income tax? The bottom 50% of households pay no federal income tax. So why are the poor entitled to feel “resentment” over their (relative) poverty but taxpayers are not entitled to feel resentment over their (relative and absolute) tax burden? Stated differently, why are the poor entitled to feel “resentment” over the distribution of income but not expected to feel gratitude over the lack of an income tax burden that follows from it?

--On the other hand, if there is “resentment” to be felt by the working poor, shouldn’t it be over the 12.4% of their paycheck that is confiscated by Social Security taxes?

--Social Security is already an extremely progressive redistribution scheme. I have blogged about this repeatedly, but the simple way to remember it is that someone who pays twice as much Social Security tax over his working life receives far less than twice as much in benefits. That’s progressive redistribution of income, folks.

--Lamenting the Social Security cap of “only” $90,000 ignores the fact that the cap has increased every single year and will continue to do so from here to eternity. So with each passing year Social Security becomes ever more progressive in its redistribution of income. And still Shiller and the CSM want more. Penny in your pocket...

--Since the Social Security “trust fund” is a fraud, the entire federal tax framework is set to become ever more progressive than it already is, beginning in 2018 2017, as the trust fund “assets” (i.e., mere promises to raise income taxes in the future) are “redeemed.” In other words, when income taxes start going up to satisfy the “trust fund,” does anyone honestly believe they will increase in a regressive way? Of course not.

--And don’t forget the Alternative Minimum Tax.

One final thought:

When first proposed, Social Security was billed as insurance, even though it clearly redistributed income, especially to many early recipients of pensions who had paid little or nothing into the system. The reason, one key drafter of the bill told Frank Genovese, an economist emeritus at Babson College in Wellesley, Mass., was that Americans did not believe in redistributing income to the poor. They did believe in insurance.

In other words, the government deliberately lied to taxpayers back in the 1930s.

What is that called again? Oh yeah – “FDR’s legacy.”

Related Recent Posts:
Social Security: Doomsday Comes a Year Earlier
Just Because the Trust Fund "Exists" Doesn't Mean It Exists
Who Faces the "Risk" of Social Security Reform?
Has Social Security Been a "Success"?
What is the Purpose of Social Security?