Krugman on the "Other Death Tax"

Krugman makes a useful point about the consequences of raising the Social Security eligibility age.  The argument in favor of increasing the eligibility age is that lifespans are increasing. But, Krugman argues, lifespans at the bottom of the chart are not increasing; so, once again, we would finance middle class lives by a tax on the poor.

It's a worthwhile point.  But as I recall, the Bushies made a similar argument back in the aughties when they were trying to privatize Social Security.  Blacks, they argued, had no real stake in the status quo because they died too soon.  This was understood by right-thinking people as a scandalous abuse of a deprived underclass for political gain.

In fact, I wasn't crazy about Bush privatization but I thought that particular argument rather a good one.  Anyway, if it was scandalous then, how come it is appropriate now?  Just askin'.

Candy Mint or a Breath Mint Redux

Here's another piece on a favorite puzzle of mine: is Social Security a "tax" (in the sense of wealth distiribution) or just a (compulsory) savings program? Veghte throws at least one issue on the table that seems to me almost lost in a discussion like this: Social Security as insurance. Odd that you can lose sight of a simple point like this, but consider the straightforward case: Elmer contributes $100,000 to Social Security. He retires at 65 and dies at 66, having collected just one payment. Does this mean that the government stole Elmer's money? Not necessarily at all. Suppose he Elmer had taken $100,000 of "his own money" and bought an annuity to provide $20,000 a year for life. The seller is, of course, making a bet on Elmer's prospective date of death. Elmer might get lucky and live for 20 years, costing the insurance company good and plenty. Or he might (as in this example) die after jut a single payment. The insurance company gets to keep the other $80,000 of course--that's the kind of money it needs to pay all the people who live "too long." But I don't think we'd think of that as piracy/confiscation or any other of the snarl words we like to tag onto social security.

I should think the insurance angle is even clearer in the case of disability payments. Nobody really wants to draw on them at all. But we're more or less settled on the principle that we need to put away something against the contingency.

See also: It's a Candy Mint! It's a Breath Mint!

Social Security: It's a Candy Mint! It's a Breath Mint!

Bruce Bartlett complains that most Americans overestimate how much they pay in Federal income tax. His commentators are giving him a hard time for not considering Social Security taxes; when you include them, it is said, most people's estimates are pretty accurate.

I think part of the confusion here is the ambivalent nature of the Federal income tax. It's an issue on which both liberals and conservatives like to have it both ways. Liberals like to call it a tax when they talk about regressivity, but they know they have to down-pedal the fact that it redistributes income. Conservatives like to hoist liberals on their own petard. Conservatives don't like it as welfare but they get more mileage pretending it is just an investment pool. It's a floor wax and a dessert topping, as candy mint and a breath mint!

Rule of Thumb on Social Security Discussions

Spent most of last evening drafting a note for my students on the meaning and history of the "Ponzi Scheme." In the process I discovered that if you search Google for "Ponzi Scheme" together with "Social Security" you get 74,000 hits. I didn't check every one, but at least for the first few pages, it appears to me that the overwhelmingly dominant view is that, yes indeedy,
you-know-what is a you-know-what.

Now, there are some perripheral problems of definition here (for a brisk but useful summary, go to Slate--oh, and this, which I found just this minute). And I readily, even cheerfully, grant that there are important public policy questions immanent in Social Security, including important issues about long-term funding. These need to be addressed and solved in due course, though I must say,for the moment I think they can stay on the back burner.

But to call something a "Ponzi scheme" is to declare it a deliberate flimflam, a calculated imposition on the artless honesty of an unsuspecting public. Like, well, perhaps this guy. Now, Social Security may or may not be good policy (I tend to think it is so-so policy). But the one thing it is not is a deliberate flimflam. Every relevant fact about Social Security is out there for all to see, and has been from day one.

May I, then, propose a general rule for Social Security discussions? That would be: anyone who opens the discussion of Social Security reform with a declaration that it is a "Ponzi scheme"--that person does not want to be, does not expect to be, and does not deserve to be, taken seriously?

Bibliography: There is a non-hysterical introduction to Social Security issues in Teresa Ghilarducci, When I'm Sixty-four, Chapter 5 (2008). I also like the stuff I read here (where, as it happens, just lately Ghilarducci has been taking some heat).

The Ponzi Caper Again

TigerHawk is orchestrating a cute discussion re entitlement finance (link). TH asks:

Is it the case that our entitlements programs (such as Social Security and Medicare) require (or barring an extraordinary surge in economic growth probably will require) a constantly growing population so that each generation is in a position to pay for the generation that precedes it? If so, then is there a moral duty to choose to have children?

You could think of this as a pendant to Christopher Buckley’s new novel where it is suggested that we oldies, for the fiscal health of the community, ought all to just go die (link). I won’t bite on his second question just now, but here is a response to the first: no, it is not the case. There's a durable error in the shadows here. Republicans have been arguing for years that Social Security is a giant Ponzi scheme since it is funded out of current contributions and not out of return on capital stock. They seem to believe (or at any rate, to hope) that once they sell the Ponzi scheme part, then Social Security will all blow away like the wicked witch of the west. But this is a non seq. It is true that we should fund out of capital stock. It does not follow that we should disband Social Security.

This error survives because both Republicans and Democrats have a stake in the underlying confusion. Republicans like to talk about Social Security as an investment program so they can howl about “your money” and how the Washington pinheads abuse it. Democrats let them get away with it because they believe that once you let anything be branded as a wealth-distribution program, it loses. This means that neither side is talking about what it is really talking about and any kind of mischief can follow.

Well, I am just a simple, barefoot, country bankruptcy lawyer [with blogging issues]. I’m not running for office and so I don’t need to buy into that kind of pretense. So far as I can tell, TH has the same incentives that I do, and he is welcome to share the same candor.