Tuesday, October 09, 2007

Democratic and Republican Approaches to Social Security

Democrats want to raise the income ceiling to pay in, while Republicans want to means test payments. In other words, Democrats want to tax labor (since social security contributions are determined by labor income), while Republicans want to tax capital (since most of the recipients’ additional income, which would be subject to means testing, is income from capital, either directly or indirectly). So, remind me again: which party is the workers’ party, and which is the capitalists’ party?

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27 Comments:

Anonymous Bob Dobalina said...

Brilliant!

Tue Oct 09, 11:21:00 AM EDT  
Anonymous Lord said...

The problem is raising the cap would largely fix the problem while means testing would be almost ineffective, so perhaps the difference is competency.

Tue Oct 09, 02:37:00 PM EDT  
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Tue Oct 09, 07:36:00 PM EDT  
Anonymous johnchx said...

This is a good point, but I think that it mainly demonstrates the uselessness of the simplistic "labor income good" vs. "capital income bad" schema. Liberals are gradually beginning to notice that those high-flying CEOs that drive them so crazy are...oops!...employees! And that those whopping pay packets are...doh!...labor income.

I suspect that progressives are gradually sidling up to the point where we notice that a progressive tax on labor income is a valid policy option, which has the incidence we want (tax the rich!) without the disincentives to investment that we (should) worry about.

Wed Oct 10, 11:04:00 AM EDT  
Anonymous Anonymous said...

Although I support progressive taxes on labour income and also have a beef with excessive CEO pay (I must be a liberal...), much of that CEO pay is in stock options and such things. I wonder how much of that CEO pay is treated as labour income, how much is treated as capital income, and how much is tax exempt.

Thu Oct 11, 09:22:00 AM EDT  
Blogger Michael said...

I think the more correct way to look at the Republican position is that it reduces payments to the wealthy and middle-class, making the program look more like welfare. Much easier to cut welfare. And their goal is to cut (not save) the program.

Mon Oct 15, 02:18:00 PM EDT  
Anonymous Advocate for sharing said...

Means-testing sounds really fine and I don't think the program should be cut.

Thu Oct 18, 11:14:00 AM EDT  
Blogger Bruce Webb said...

Lifting the cap is both unnecessary and politically unwise and liberals who favor doing so just don't understand the nature or current financing of Social Security.

Society has an interest in insuring that survivors of an early death, or workers who become disabled, or who are old enough to permanently leave the workforce have the means to live a life with minimal dignity. If we really believed with Newt that this can best be done by relying on charity we might take the Olasky approach. Being clear eyed workers with a knowledge of social and labor history, well lets just say "Not so much".

Social Security was carefully designed to buffer it from the demands of capital. It draws nothing from capital and so owes capital nothing. In fact it is currently lending money to capital and is expected to continue to do so. Over the next ten years Social Security is projected to lend $2.15 trillion more to the General Fund on top of the $2.1 trillion it has to date. Social Security is not some pauper coming hat in hand for a bailout, it is the single largest creditor this country has and we need to start thinking that way.

No one has ever been able to demonstrate that Social Security will not be totally self-funding going forward. The current 'problem' is based on a projection that Real GDP going forward will shrink by 33% over the next five years to 2.2% and then continue drifting down to ultimate 2.0%. No one I know has actually explained why such a result is likely, still less while it should be the median projection. We have not had a single five year period of Real GDP growth below 2.4% going back to 1960. Growth at that rate would fix about 50% of the problem on its own, growth at 2.7% solves the whole problem. And we should note that the 'problem' even on its own terms is not a problem, in real terms the benefit at depletion under Intermediate Cost assumptions is still 120% relative to the benefit a simularly situated retiree gets today. I call it Rosser's Equation after Prof Barkeley Rosser of JMU who pointed it out. The current scheduled benefit at depletion is 160% of the current benefit. 75% of that is 120%. Yep that is how we are defining crisis 75% of 160% = 120%.

And the supposed liberal solution is raising the cap and so alienating the middle upper portions of the middle class and so undermining political support of Social Security among the professional ranks while the conservative solution has us means testing Social Security for the middle upper portions of the middle class and so undermining political support of Social Security among the professional ranks. Well thanks for all the helpful advice. Now go away, hopefully to actually examine the financials of Social Security.

Because on Social Security not only is the plural of anecdote not data, it is typically anti-data. You generally know less about the economics of Social Security after reading a typical article or OpEd than before. If you haven't evaluated the numbers of Tables IV.A3, V.B1, V.B2, and VI.F7 and F8 for yourselves you simply are not qualified to venture an opinion on this. Sorry if that sounds harsh but its true. If your knowledge of Social Security finance has been gained second hand from traditional media it is almost certainly wrong. The Social Security Reports are available in both PDF and HTML versions online or you can order a paper copy free with first class mail ($9) paid for by the SSA. How can they afford that? Because no one asks.
SSA.Gov: Trustees Reports
2007 Social Security Report: Table of Contents
2007 Social Security Report; List of Tables

Sat Oct 20, 01:13:00 PM EDT  
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