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.