February 03, 2016
Eduardo Porter had a piece this morning about how a group of academics on the left and right came together around a common agenda. It is worth briefly commenting on two of the items on which the “left” made concessions.
The first is agreeing that Social Security benefits for “affluent Americans” should be reduced. There are three major problems with this policy. The first is that “affluent Americans” don’t get very much Social Security. While it is possible to raise lots of money by increasing taxes on the richest 1–2 percent of the population, the rich don’t get much more in Social Security than anyone else. This means that if we want to get any significant amount of money from reducing the benefits for the affluent we would have to reduce benefits for people that almost no one would consider affluent. Even if we went as low as $40,000 as the income cutoff for lowering benefits, we would still only save a very limited amount of money.
The second problem is that reducing benefits based on income is equivalent to a large tax increase. To get any substantial amount of money through this route we would need to reduce benefits at a rate of something like 20 cents per dollar of additional income. This is equivalent to increasing the marginal tax rate by 20 percentage points. As conservatives like to point out, this gives people a strong incentive to evade the tax by hiding income and discourages them from working.
Finally, people have worked for these benefits. We could also reduce the interest payments that the wealthy receive on government bonds they hold. After all, they don’t need as much interest as middle-income people. However no one would suggest going this route since the government contracted to pay a given interest rate.
Social Security involves a similar sort of commitment, although many on the right would like to deny this fact. The program is already structured to be highly progressive, the wealthy pay much more money into the program for every dollar they get back. There are many proposals from the left to make the program even more progressive by increasing the taxes paid by the wealthy. This would help to ensure the long-term solvency of the program while maintaining the level of benefits for all workers. There is a serious risk that cutting benefits for middle income seniors will be a first step in the opposite direction, undermining the public support for the program.
The other dubious position in this agenda is the strong endorsement for marriage. While there are enormous benefits from strong relationships, especially for children, the government is not a very good matchmaker. It is not obvious what the government can do to increase the likelihood that two compatible people will remain together in a healthy relationship.
There are plenty of unhealthy relationships, where one member is abusive of the other and often children. In these cases, it is not good to keep couples together and it would be foolish for the government to try.
As a matter of policy, we have to recognize that a large number of children will be raised by single parents. We need policy to ensure that these children are not penalized as a result of their parent’s marital status. Many proposals to promote marriage will at least indirectly have this effect.
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