March 17, 2011
Andrew Sullivan has put forward a dramatic proposal for means testing Social Security. He wants to eliminate all Social Security benefits for individuals with non-Social Security incomes above $40,000. In addition, he wants to raise the retirement age to 70. Let’s take these in turn.
First, $40,000 is probably a bit low for most people’s definition of wealthy. Most people probably don’t think of firefighters and nurses as wealthy, but we don’t live in Mr. Sullivan’s world.
So, in the interest of dealing with projected deficits in the years ahead, rather than taxing the rich, taxing financial speculation, fixing the health care system, or cutting defense, Mr. Sullivan wants to use a “Social Security” tax on the wages of middle class workers to pay for shortfalls elsewhere in the budget. I look forward to seeing candidates running on this platform.
Apart from the politics, this also creates interesting policy. Sullivan’s means-test could create marginal tax rates of more than 1000 percent. Take a worker who earns $41,000 a year and has a Social Security benefit of $10,000 a year. Under Sullivan’s means-test this last $1,000 of income costs this worker $10,000 in benefits.
This situation would likely lead to many people earning $39,999 a year as people found ways to hide their income. This means the government doesn’t get much money and we will have encouraged serious disrespect for a ridiculous tax system. This is why serious analysts don’t propose such silly means test, but such policy issues are obviously not a concern at the Atlantic.
Finally, there is a more basic question of where the money is. The bulk of the income gains over the last three decades have gone to those at the top. Unfortunately, there seems little likelihood this will change on our current path.
In three decades, per capita GDP will be about 60 percent higher than today. That comes to an additional $30,000 per person per year (in today’s) dollars. In a much richer country, where the Robert Rubins and Donald Trumps are likely to have an even larger share of the pie, Sullivan wants to take away the Social Security benefits that nurses and school teachers paid for throughout their working careers.
Yeah, who could argue with that one.
