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We’ve bantered on this site about replacing a seemingly “bad” tax, that on working (social security), with a less bad tax (on “bads”) such as one on carbon.

I’d like to remind readers about some lesser appreciated “badness” of social security. Since I’m posting from my mobile phone using Siri I apologize in advance for not including links or data … I hope you can at least trust that the general pattern I comment on is correct.

So, we think social security is bad because it functions for the 90% of the earners as a tax on marginal work effort. And some of you might think it is “bad” because it phases out — at incomes around $110,000 the social security tax goes away. That is nominally regressive (in another post I’ll explain why this does not necessarily bug me).

And some of you may even have heard that at the back end the social security program may be regressive — regardless of your wealth (sorry to slide between income and wealth) you still get social security checks if you paid into the system. Indeed, the more you pay in the more you get out. So some proposals to keep social security solvent intend to “means-test” social security payments. This post will not discuss this beyond defining that this means that the richer you are the smaller your payment would be.

But what is much less understood is that social security is regressive (very much so) for reasons beyond how much you make. It turns out that health, longevity and income are strongly correlated. Poorer individuals live a LOT fewer years than richer ones. Indeed if I were to rank all “causes” of American mortality, poverty would easily be the #1 killer. Thus two individuals, one rich and one poor, will receive social security benefits for very different lengths of time. Many poor people will pay payroll taxes their entire lives and die before receiving a payment. By the way this is certainly the best evidence that there is no “trust fund” or lock box that is vested for every worker – for if there was each person paying in would have a vested property right that would be transferable upon their death – but if course this is not at all the case.

Which finally brings us to our point. Once we understand that payments do not make their way to early mortality poor people, we understand that social security is far more “generous” for those of us who happen to be in safer jobs as compared to our counterparts in riskier jobs. Do wages in labor markets adjust for this? They ought to – but I find it worth pointing out (or prompting folks to do more research) that if I earn $50,000 per year to teach economics as compared to earning $50,000 per year to work on one of the Deadliest Catch boats, then I will collect a heck if a lot more in social security benefit checks that my alter-ego … yet would have paid in exactly the same amount.

Should social security taxes be “expected mortality” weighted? I don’t have an answer of course, but this example merely scratches the surface of the “inequities” we create when we try to transfer resources in this way.

5 Responses to “On the “Badness” of Social Security Taxes”

  1. chuck martel says:

    OK, give me the date in US history when extension of an individual’s life to the technological maximum became the most important thing. We can’t imagine a replay today of the confrontation between Alexander Hamilton and Aaron Burr in 1804. Both men went to Weehawken, New Jersey well aware that only one was likely to return but they went anyway. It’s unlikely that Joe Biden and presumably Paul Ryan could even resort to a shoving match, much less pistols. The anonymous poker player that pulled his watch out of the pot won by Bill Hickok in St. Louis in 1872 was warned by Wild Bill that the watch would change hands the next day but he didn’t leave town and Hickok paid for his burial and secured the watch. (Wouldn’t that be a great watch to be carrying around right now?) Evidently at some point in the not-so-distant past there were things that were more important than the maximum extension of life. Today it seems as though the population, brainwashed by the never-ending jabber about health care and retirement, is intent on securing a good spot in front of the TV in the assisted living lounge so they can spend the afternoon watching Oprah and Seinfeld re-runs before the English-as-a-second language aide arrives to change their adult-size diapers.

    For the immediate future, at least, we’re all going to have to reluctantly accept our own mortality, just as sentient beings have for millennia. Making the length of our lifespan more important than any other feature of our existence is something our ancestors would find puzzling.

  2. wintercow20 says:

    Chuck, that’s definitely worthy of its own post. People think I am crazy when I tell them that at some point I am content (that’s not quite the right word) to walk off into the wilderness for one last time and not come back. We’ll see if I stick to my guns when it’s my time, but at least that’s the idea in my mind.

  3. As a boomer born in 1949, I not only intend to collect social security, I expect that Gen-X and Gen-Y wil revolt. However, raised with Walt Disney’s Jiminy Cricket, I expect to live to be 103 ’cause I’m no fool. (When I was 28, I wrote this ditty based on a Raisin Bran commercial: “I start my day / the vitamin way / I shovel in those grams / So I don’t age, and I don’t stress, and I don’t give a damn!”)

  4. Chuck Martel generalized: “Today it seems as though the population, brainwashed by the never-ending jabber about health care and retirement, is intent on securing a good spot in front of the TV in the assisted living lounge so they can spend the afternoon watching Oprah and Seinfeld re-runs before the English-as-a-second language aide arrives to change their adult-size diapers.”

    Not for me. I intend to die with my boots on.

    I think that if you actually had a scientificall valid poll of attitudes and opinions, you will see that your caraciture above applies to my parents generation, George Will’s “Greatest Generation.” My generation has different goals entirely, far from television and Oprah. As for those behind us, I had lunch with a gray-haired guy and I had to focus on the fact that he is 42, not 62. Gen-X is looking at 65, also… His expectations are not mine, individually. I submit that statistically, the population samples of beliefs would not support Martel’s easy claims.

    • chuck martel says:

      Your generalization isn’t any more valid than mine. The generation that I’m speaking about is your age and younger. Their goal isn’t to wear diapers in front of the TV but that’s how it’s going to work out for a whole mess of them. What they really want is to get up every morning and not have to go to work . . . but still be able to afford greens fees at the golf course and pay the cable bill. And they’d like to be able to do it sooner, like some public employees, cops and firemen, for instance. In other words, people want to live long, healthy lives without having to show up for work. An admirable goal but hard to attain in our modern society.

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