Means Testing Social Security Is A Kind of Tax Increase

Moneybox
A blog about business and economics.
Jan. 8 2012 5:12 PM

Means Testing Social Security Is A Kind of Tax Increase

Leaving the payroll tax intact and reducing Social Security benefits for higher-income seniors is, in effect, an increase in marginal tax rates but it was clear from the discussion at this morning's GOP Presidential debate that few Republicans see it this way. Still, it's true. The way Social Security works is that you pay taxes when you're working and you collect benefits when you retire, with the benefits proportional to what you paid. If the benefits were strictly proportional then there would in a sense be no tax at all—it'd be a forced savings program. But the benefits aren't strictly proportional to what you pay. The program has a disability insurance function and is also mildly redistributive. If you make it more redistributive by reducing benefits for people at the top of the income spectrum, this will have all the same effects as making it more redistributive by raising the tax rate paid by people at the top of the income distribution. The proposals are appealing for the same reason—they ask sacrifice of those most able to bear the sacrifice—and they're unappealing for the same reason, reducing incentives to work and invest in human capital.

But for whatever reason, the formal accounting distinction between a "tax increase" and a "benefit cut" seems to weigh very heavily on Republican politicians.

Advertisement

Still consider a proposal to hand each American a $5,000 cash grant each year financed by a $5,000 per person annual head tax. Implementing this would, in the real world, change nothing at all. But in the exciting universe of accounting it would register as a huge tax increase and a giant expansion of the welfare state. The rank ordering of countries by taxes as share of GDP would need to be revised. But it'd be the same thing.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Technocracy

Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

Republicans Want the Government to Listen to the American Public on Ebola. That’s a Horrible Idea.

The 2014 Kansas City Royals Show the Value of Building a Mediocre Baseball Team

The GOP Won’t Win Any Black Votes With Its New “Willie Horton” Ad

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Politics

Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

I Am 25. I Don’t Work at Facebook. My Doctors Want Me to Freeze My Eggs.

These Companies in Japan Are More Than 1,000 Years Old

  News & Politics
The World
Oct. 21 2014 11:40 AM The U.S. Has Spent $7 Billion Fighting the War on Drugs in Afghanistan. It Hasn’t Worked. 
  Business
Business Insider
Oct. 21 2014 11:27 AM There Is Now a Real-life Hoverboard You Can Preorder for $10,000
  Life
Quora
Oct. 21 2014 11:37 AM What Was It Like to Work at the Original Napster?
  Double X
The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don’t Work at Facebook. My Doctors Want Me to Freeze My Eggs.
  Slate Plus
Tv Club
Oct. 20 2014 7:15 AM The Slate Doctor Who Podcast: Episode 9 A spoiler-filled discussion of "Flatline."
  Arts
Behold
Oct. 21 2014 12:05 PM Same-Sex Couples at Home With Themselves in 1980s America
  Technology
Technology
Oct. 21 2014 10:43 AM Social Networking Didn’t Start at Harvard It really began at a girls’ reform school.
  Health & Science
Climate Desk
Oct. 21 2014 11:53 AM Taking Research for Granted Texas Republican Lamar Smith continues his crusade against independence in science.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.