Network News

X My Profile
View More Activity

The soft paternalism of tough choices

By Karl Smith

There is a lot hand-wringing over the sustainability of Social Security. A fair bit of it is on display in the co-chairmen's proposal. However, sustainability is not really at issue. What is at issue is desirability.

Social Security is a transfer program. It takes money from one generation, current workers, and gives to another, current retirees. Such a program is sustainable if the total possible taxes that could be levied on current workers do not exceed the total benefits paid to current retirees. Such a program is desirable if what each generation gives up today is worth less to them than what they hope to receive in the future.

Based on any estimates I have seen, it’s clearly possible to raise taxes on workers high enough to fund benefits to retirees for the foreseeable future. Even if such taxes had nasty effects on long term growth -- which is a major source of debate -- they are nonetheless possible.

What we have to determine is whether or not potential tax increases are desirable. A good first step would be to ask people. Fortunately Gallup has done just that. To some extent all age groups, but especially the young workers we claim to be concerned about, believe that raising taxes is a superior solution to cutting benefits.

Perhaps, they don’t understand the full trade-offs. This is a possibility and we should make clear the scope of the possible tax increases and reasonable estimate of the effect on economic growth. However, at a core level, if people would prefer to pay more in order to get more then there is nothing wrong with that. It doesn’t make sense to protect future generations from the possible burden of higher Social Security taxes when future generations are saying that they would prefer to shoulder that burden.

That is, unless, your position is that young workers don’t know what’s good for them and it is up to us to safeguard them from themselves. We must, such arguments say, impose the tough choices and hard sacrifices that will leave tomorrow’s generation with a world they consistently tell us that they do not want.

I fear that calls to make tough sacrifices aren’t about protecting future generations. They are about proving to the current generation how hard-nosed and responsible we are. I worry that it is a gratuitous display of seriousness that risks leaving the world a worse place than it was before we started trying to improve it.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.

By Karl Smith  | November 11, 2010; 1:12 PM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: The best-laid plans
Next: How Joe Lieberman helped the Democrats lose the election

Comments

"Even if such taxes had nasty effects on long term growth -- which is a major source of debate -- they are nonetheless possible."


Well heck sure. Almost anything's possible. But then I'm not as worried about long term growth as I am short term. What kind of negative effect is less money in all of our paychecks going to have on aggregate demand over the next 3-5 years.

Posted by: visionbrkr | November 11, 2010 1:25 PM | Report abuse

@visionbrkr:
Well, I don't know. If I understand correctly, the money doesn't just disappear after it's taken from the workers paychecks. It's given to the retirees and they spend it. It's a system we've all bought and paid into for a couple of generations now. It's worked well so far, seems to me. Is it correct to imply that when the $$ is deducted from the paycheck that it's somehow removed from circulation? I may well be wrong, but I don't think it is.

Posted by: jonboinAR | November 11, 2010 1:38 PM | Report abuse

The central point in polling about this is the employer/employee share shenanigans that are played with the payroll taxes. Because of this, people are not informed about the full costs of the payroll tax. So if you say that it will take 10% more than current contributions to maintain social security, if I just read my pay stub, I interpret that as about a .6% tax hike. In fact it is a 1.2% tax hike however, as I will see .6% lower wages as a result.

Due to the push-polling nature of an explanation of the payroll tax, what I would do to poll that question is ask a simple question or two to suss out respondents who know what the tax rates are, and then use those results to try to divine preferences.

Posted by: huadpe | November 11, 2010 2:20 PM | Report abuse

"To some extent all age groups, but especially the young workers we claim to be concerned about, believe that raising taxes is a superior solution to cutting benefits."

You have it backwards. Young voters are mostly unemployed or in school in today's Obama economy and they don't pay any significant quantity in taxes.

Posted by: krazen1211 | November 11, 2010 2:37 PM | Report abuse

how about this-young workers that want more benefits, can pay more taxes. those that don't want more benefits (or think that SS won't be around when they retire anyways) take the benefit cut. that way, no one has to be paternalistically imposed on. this should be pretty easy-just check a box on your tax form. i wonder how many people will vote with their money, as opposed to yapping to a pollster.

Posted by: jfcarro | November 11, 2010 3:17 PM | Report abuse

"However, at a core level, if people would prefer to pay more in order to get more then there is nothing wrong with that."

Okay, then let those individuals who want more money in retirement save more. That's exactly the same thing, and it doesn't require any paternalism, soft or otherwise.

"Well, I don't know. If I understand correctly, the money doesn't just disappear after it's taken from the workers paychecks. It's given to the retirees and they spend it. It's a system we've all bought and paid into for a couple of generations now. It's worked well so far, seems to me. Is it correct to imply that when the $$ is deducted from the paycheck that it's somehow removed from circulation? I may well be wrong, but I don't think it is."

Delightful. Make sure to apply that logic when some politician starts touting another round of fiscal stimulus.

Posted by: justin84 | November 12, 2010 2:10 AM | Report abuse

A shamelessly borrowed thought:

"We seem not to have perceived that, by the law of nature, one generation is to another as one independent nation to another.

"with respect to future debts, would it not be wise and just for the nation to declare ... that neither the legislature, nor the nation itself, can validly contract more debt than they may pay within their own age, or within the term of 19 years? And that all future contracts will be deemed void as to what shall remain unpaid at the end of 19 years from their date? This would put the lenders, and the borrowers also, on their guard. By reducing too the faculty of borrowing within it's natural limits, it would bridle the spirit of war, to which too free a course has been procured by the inattention of money-lenders to this law of nature, that succeeding generations are not responsible for the preceding.

"To keep our ideas clear when applying them to a multitude, let us suppose a whole generation of men to be born on the same day, to attain mature age on the same day, and to die on the same day, leaving a succeeding generation in the moment of attaining their mature age all together. Let the ripe age be supposed of 21 years, and their period of life 34 years more, that being the average term given by the bills of mortality to persons who have already attained 21 years of age. Each successive generation would, in this way, come on, and go off the stage at a fixed moment, as individuals do now. Then I say the earth belongs to each of these generations, during it's course, fully, and in their own right. The 2nd generation receives it clear of the debts and incumberances of the 1st. the 3rd of the 2nd and so on. For if the 1st could charge it with a debt, then the earth would belong to the dead and not the living generation.

Posted by: rmgregory | November 12, 2010 2:29 AM | Report abuse

I know a lot of people who think taxes should be higher. For somebody else. I don't know anybody who thinks their own taxes should be higher.

If this "study" didn't take that into account, then I can only assume taxpayer money was involved.

Posted by: timmaguire | November 12, 2010 7:07 AM | Report abuse

Your description of SS is not completely accurate. Beginning in the eighties we started paying more into SS to cover the Baby Boomers' retirement. This is there is a "trust fund". If the program worked the way you described there would have been no SS money for the government to borrow.

Posted by: BernieO | November 12, 2010 7:09 AM | Report abuse

Hey Beavis!

We've HAD higher taxes for 20 years. It was the Greenspan plan to 'save social security.' The boomers were to pay ahead for their own retirement, so SS has been running a surplus for all that time. That surplus has been invested in treasury bills.

The only question at this point is will the government honor those treasury obligations or ignore them? The idea before was that they would be redeemed to pay the extra cost for boomer retirees. Now you're pretending they don't exist at all and only new taxes can be used for that purpose.

Frankly, that's just BS.

The only reason anyone would take that position is because of a desire to achieve a permanent shift of the tax burden from income taxes to payroll taxes for running the government. Another way of saying that is you want to shift taxation from the wealthy to the middle class.

No thanks.

We've used decades of SS surplus to paper over the true impact of tax cuts for the wealthy and they've made out like bandits. Now it is their turn to pay the cost of redeeming those treasury obligations.

Posted by: pj_camp | November 12, 2010 8:51 AM | Report abuse

SS should be done away with. To me it is one giant pyramid scheme. I am 21 years old and I know this program will not last more then 10 years from today. To have about 12% of my paycheck go to people who dont care about me and the government who constantly screws me over really pisses me off. I work over 60 hours a week and I still struggle to pay my bills. I have nothing extravegant to pay for I only spend on needs. So to have that much of my paycheck dissapear while im struggling to live really really aggravates me. I DONT WANT TO GIVE MONEY TO PEOPLE I DONT KNOW, IM STRUGGLING MYSELF HOW DARE I HELP SOMEONE ELSE WHEN I CAN BARELY HELP MYSELF.

Posted by: sdancsec | November 12, 2010 11:16 AM | Report abuse

SS should be done away with. To me it is one giant pyramid scheme. I am 21 years old and I know this program will not last more then 10 years from today. To have about 12% of my paycheck go to people who dont care about me and the government who constantly screws me over really pisses me off. I work over 60 hours a week and I still struggle to pay my bills. I have nothing extravegant to pay for I only spend on needs. So to have that much of my paycheck dissapear while im struggling to live really really aggravates me. I DONT WANT TO GIVE MONEY TO PEOPLE I DONT KNOW, IM STRUGGLING MYSELF HOW DARE I HELP SOMEONE ELSE WHEN I CAN BARELY HELP MYSELF.

Posted by: sdancsec | November 12, 2010 11:18 AM | Report abuse

SS should be done away with. To me it is one giant pyramid scheme. I am 21 years old and I know this program will not last more then 10 years from today. To have about 12% of my paycheck go to people who dont care about me and the government who constantly screws me over really pisses me off. I work over 60 hours a week with a professional job and I still struggle to pay my bills. I have nothing extravegant to pay for I only spend on needs. So to have that much of my paycheck dissapear while im struggling to live really really aggravates me. I DONT WANT TO GIVE MONEY TO PEOPLE I DONT KNOW, IM STRUGGLING MYSELF HOW DARE I HELP SOMEONE ELSE WHEN I CAN BARELY HELP MYSELF.

Posted by: sdancsec | November 12, 2010 11:19 AM | Report abuse

@sdancsec

Live within your means and you wouldn't be struggling to pay bills.

Posted by: cavatellie | November 12, 2010 11:55 AM | Report abuse

Cavatellie, I spend less then anyone I know, I have no debts other then a car loan with great interest and low monthly cost. I dont go out and spend money like everyone else my age. Basically Im working to pay off food, rent, and my healthcare. Maybe if I wasnt paying into this government scam then Id be able to save a couple hundred a month to buy more food and possibly save for my own kids one day. But no im stuck giving my money to aholes who want to scam the system and not work.

Posted by: sdancsec | November 12, 2010 2:54 PM | Report abuse

Karl Smith's position regarding the issue of raising taxes on Americans currently working to pay benefits to the retiring generation ignores the fact that Social Security has all the money it needs to pay everyone that invested in it back.

Unfortunately Social Security it is in the form of "IOUs" (bonds) which can only be converted to cash by taxing the very people it is owed to.

Over the many years Social Security has been active, members from both sides of the isle have used the "surplus" generated by the social security tax to pay for unfunded programs outside of Social Security.

As a result, Social Security more closely resembles a Ponzi scheme (think Bernie Madoff) than a social welfare program.

I am not alone in this assessment of the program. Milton Friedman, a Nobel Laureate (Economics) called Social Security, "The Greatest Ponzi Scheme on Earth"

Even if one were to ignore the glaring similarities between Social Security and a Ponzi Scheme and classify it as an investment/retirement program.

The return on an investment into social security for the average American is no less than dismal.

Workers would be better off simply depositing 15 percent of their paycheck into an interest bearing checking account and collecting 1-2 percent interest for 50 years.

This article is preposterous. It is time for Americans to realize that the money paid into Social Security by the last Generation of workers (50-60 years) has been squandered. The program used to finance unfunded campaign promises.

My mother is currently collecting social security as is my disabled brother. I would prefer to see them lose their benefits than see this great nation fall under a crushing debt load.

If this generation wants to prove that they are disciplined and tough, they can do it by insisting that those currently collecting benefits will continue to do so. But that if you are 30-40 years old, you will never receive benefits. Within 20 years the program can be phased out.

Posted by: ImWright | November 12, 2010 9:37 PM | Report abuse

Friedman was wrong on a lot of other things as well. Add this to the list.

Posted by: JimZ3 | November 12, 2010 11:10 PM | Report abuse

Friedman was wrong on a lot of other things as well. Add this to the list.

Posted by: JimZ3 | November 12, 2010 11:13 PM | Report abuse

Post a Comment

We encourage users to analyze, comment on and even challenge washingtonpost.com's articles, blogs, reviews and multimedia features.

User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions.




characters remaining

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company