The Progressive Case Against Social Security and Medicare

As America approaches a budget crossroads, a national debate has emerged over the proper size of the federal government. Of course, Social Security and Medicare figure prominently in any such debate given that they comprise about a third of the federal budget. Given progressives' strong support for these two programs, you'd initially think these were Rawlsian transfers from the wealthy to the poor. However, the facts suggest that the egalitarian case for these programs is greatly overstated. For example:

• (1) The payroll tax that funds Social Security and Medicare is regressive. First of all, the payroll tax is a flat rate. Second, unlike in the case of the income tax, low-income taxpayers are not exempted from the tax. In fact, only the first $106,800 of an employee's income is subject to the payroll tax. So, whereas someone with $1,000,000 of taxable income would pay $327,644 in income tax while someone with $160,000 in taxable income would pay $38,509, both earners would pay $8,170 in payroll tax (assuming a pre-stimulus 7.65% payroll tax rate). 

• (2) Retirees are, on average, wealthier than the comparatively young workers subsidizing them.

• (3) Social Security and Medicare are not means-tested. Some wealth transfer programs require that beneficiaries fall below a certain low income threshold to qualify. Social Security and Medicare, on the other hand, redistribute wealth even to middle class, upper middle class, and affluent retirees.  

• (4) Rich people tend to outlive poorer people. Paul Krugman told me so. Hence, poorer retirees tend to collect Social Security benefits for shorter time periods than their richer counterparts. Social Security is an especially terrible deal for African-Americans males given that their life expectancy is about 70.

• (5) The employer portion of the payroll tax indirectly hurts poor workers. Employers have to match their employees' payroll tax contributions. This raises the cost of hiring people and some of the tax incidence is consequently borne by workers via lower wages and fewer work opportunities.      

In summary, Social Security and Medicare, as presently constituted, are pretty lousy ways of reducing income inequality. So, if the egalitarian rationale for these programs is weak, why do progressives support them? My answer: paternalism. If you kept the 15.3% of wages that Big Brother confiscates from your paycheck, you might blow the money on sneakers with lights in them as opposed to prudently saving for your retirement. For those of us who (quite reasonably) think we can spend our money better than bureaucrats can, that is quite an offensive notion.

In any event, please save the class warfare card for other programs. Social Security and Medicare do not rob Bill Gates to feed starving Third World orphans. They rob Joe the Plumber to pay Bill the (retired) Carpenter.