Strengthening Constitutional Self-Government

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Acceptable and Unacceptable Ways to Scam the Rich

Ramesh Ponnuru raises this question: If conservatives could implement their favorite Social Security remedies, such as the progressive indexing Pres. Bush endorsed in 2005, the affluent will see lower benefits while their taxes remain the same. If liberals get their favorite remedies, such as abolishing the upper limit on income subject to the payroll tax, which Sen. Obama has cautiously endorsed, the rich will pay higher taxes and receive the same benefits. Either way, Social Security becomes a worse deal for the upper quintile. If “a benefit cut would make rich people stop supporting Social Security,” he asks, “why wouldn’t a tax increase have the same effect? Is the theory that rich people can’t do math?”

There are two questions. First, why should it matter to liberals whether Social Security becomes a worse deal for the rich in the one way or the other? The rule here is, “Not one step backward.” The lesson of the 2005 liberal victory on Social Security is that they have no interest in the question raised by Mickey Kaus at the time: “Universality is extremely expensive,” he said. Devoting a large portion of our GDP to mailing “Social Security checks to rich and poor alike” can’t possibly be “the highest and best use” of it. Such arguments are of no interest whatsoever to liberals who have spent decades wresting GDP points away from the private sector for the public sector to use. Any “reforms” of the welfare state that re-privatize those points, or lead in any direction but the acquisition of additional GDP points by the public sector, are non-starters.

Secondly, why should liberals believe the rich will continue to support Social Security if it becomes a worse deal for them because of tax increases, but threaten to start looking for exit doors if it becomes a worse deal because of benefit cuts? The short answer is, yes, liberals do think the rich can’t add. The longer answer is, why should they think differently? Social Security has been a bad deal for affluent Americans for 72 years, but the defense and steady expansion of the program has never been any sort of political liability for liberals. Our social insurance system has flourished, politically, by the simple expedient of marrying conspicuous benefits to unobtrusive taxes. What incentive do liberals have to abandon a winning formula? Until 1993, the portion of the payroll tax devoted to Medicare was capped, as the larger Social Security portion still is. I don’t remember any outcry when that cap was lifted.

Just because liberals never have paid a political price for Social Security taxes doesn’t mean they never will, however. Abolishing the Social Security Wage Base would be a huge tax increase – a 12.4% surcharge on all income over $100,000. It would affect one in every six households. It would, additionally, be quite awkward, given that the liberal party line on entitlements is that Social Security is fundamentally sound, and entitlement reform really means health care cost controls to bail out Medicare and Medicaid. That’s a big tax increase to fix what we’ve been assured is a very small problem. If conservatives can’t turn such contradictions into a teaching moment, we deserve a long walk in the wilderness.

Discussions - 2 Comments

Wait, you think that the reason that "the rich" support Social Security is because of the particular value of the benefits that actually accrue to them personally? Perhaps that is true for adjusted household incomes of $100K - a figure that you should tell your readers does not easily translate into $100K individual income, assuming we're talking about the usual gov't numbers, unless we're talking about single guys.

But $200K? $300K? I doubt it. And it is certainly not true as you get beyond the upper quintile simplification and focus on the upper 5%, 1% or fraction of 1%.

I would guess that people in the upper quintile support it for a few reasons. First, it is an old program. Second, it is universal, so people don't begrudge the income transfer as much. Third, lower in the upper quintile, it's an additional hedge against risk. And finally, at a certain income level, the tax isn't large enough to pay attention to.

Remember - the upper quintile stretches quite a ways and includes some comfortable folks as well as the super rich.

I think Brett makes a great point. I am not sure that the rich as a group could be so easily classified...and I am not sure that all rich folk don't care about higher taxes, but to many I am sure it is not a deep priority or a pressing concern. Just as academia might have different literary preferences from society in general, so to do I believe that the rich in general are more interested in "higher" order things..."the greater good"(or whatever will bring them praise and avoid blame..hahaha) than in embracing the simplistic behavioral predictions of the dismal science.

In a strange sort of way I believe the rich take less offense at the proposition that they can't do math than at the suggestion that supporting the democratic view on social security means they can't do math.

I believe the rich wish to feel themselves above the scope and fray of "rational choice theory" above simplistic models of expected behavior ceteris paribus. In the business world they may make us of these models to predict the behavior of the plebians, but for this very reason they seek to be a little less predictable.

A bennefit cut might compromise the premise that Social Security is Universal...and someone could make a big deal out of the fact that it is "universal" that this says something about equality...yada yada...who can know what bondaries or reasons someone might have for seeing something as significant or symbolic? I don't necessarily buy that line but ...It is just as likely that a bennefit cut would make the rich stop supporting social security as it is that higher taxes would. Higher taxes or reduced personal bennefits aren't going to stop the rich per may stop some of them who conform to economic reasoning on both sides...but what is to say that they may not be equally motivated by loyalty to the conception of "universality"?

On the other hand economists realize this and they get around this objection by simply talking about the super rich might be inelastic when it comes to tax increases, but elastic when it comes to ideological/symbolic affronts. But I am sure that if this affects 1 out of 6 households demand won't be nearly as inelastic when it comes to tax increases...basically exactly what Brett says.

John Lewis

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