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Progressivizing the Already Progressive

July 11, 2010

There’s been a lot of talk recently about raising the retirement age to deal with the insolvency of Social Security.  This chart, which shows that since 1972 the life expectancy of the top half of the earnings distribution has shot up relative to the bottom half, has been making the rounds, in order to demonstrate — I gather — that raising the retirement age would benefit the rich at the expense of the poor since the rich live a lot longer.  That’s supposed to be a good reason not to do it.

Drum expanded on this point yesterday, quoting a commenter who suggested that the ceiling on what percentage of wages can be taxed via payroll should be removed, since high-income workers collect benefits for longer than low-income workers and thus should pay more.  As Megan McArdle pointed out a little while ago, this isn’t as easy as it looks — among other reasons not to do it, this would raise the taxes on the highest incomes to over 60%, and at that point, you’re really straying into the political death zone.  However, as Drum says, “Fair is fair”, right?

Well, not really.  A while back, Andrew Biggs used this chart to to refute Paul Krugman’s claim that the payroll tax is regressive — and which I used to argue that the entire U.S. tax system is progressive.  It shows that payroll taxes — despite their alleged existence as a “contribution” — are collected quite disparately once people actually get around to collecting them.  As you move up on the income scale, people start collecting a lot less from their payroll taxes than what they paid in.  Specifically, the highest quintile pays 3 percent more in payroll taxes than it gets back.  The lowest quintile, by contrast, collects 27 percent more than it receives.

Now, keep in mind: that entails all payroll taxes, not just Social Security.  But the point remains the same.  Low-income Americans are already benefiting from entitlements at a much higher level than high-income ones are, and it’s not “only fair” to take what’s already an aggressively disproportionate system and make it even more progressive.  As Matt Yglesias suggested the other day, “if you want to cut Social Security benefits you should just cut Social Security benefits.”  There’s no need — nay, there’s probably a need not to — place an even larger burden on the rich to fix a program that could be fixed by other means.

This is probably just a big non sequitir, though.  Social Security will probably be repaired by some sort of means-testing anyway, although removing the ceiling on taxable wages is definitely not the way I’d like to see it done.

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