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Even assuming taxes fund spending, why should Social Security be pre-funded?

Michael Hudson:

There is no inherent need to single out any particular area of public spending as causing a budget deficit if it is not pre-funded. It is a travesty of progressive tax policy to only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding, exempting higher earnings, capital gains, rental income and profits. The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth, by falling on low wage income at a much higher rate than that of the wealthy. This is not how the original U.S. income tax was created at its inception in 1913. During its early years only the wealthiest 1% of the population had to file a return. There were few loopholes, and capital gains were taxed at the same rate as earned income.

The government’s seashore insurance program, for instance, recently incurred a $1 trillion liability to rebuild the private beaches and homes that Hurricane Sandy washed out. Why should this insurance subsidy at below-commercial rates for the wealthy minority who live in this scenic high-risk property be treated as normal spending, but not Social Security? Why save in advance by a special wage tax to pay for these programs that benefit the general population, but not levy a similar “user fee” tax to pay for flood insurance for beachfront homes or war? And while we are at it, why not save another $13 trillion in advance to pay for the next bailout of Wall Street when debt deflation causes another crisis to drain the budget?

But on whom should we levy these taxes? To impose user fees for the beachfront reconstruction would require a tax falling mainly on the wealthy owners of such properties. Their dominant role in funding the election campaigns of the Congressmen and Senators who draw up the tax code suggests why they are able to avoid prepaying for the cost of rebuilding their seashore property. Such taxation is only for wage earners on their retirement income, not the 1% on their own vacation and retirement homes.

Not clear to me what the pre-funding (so-called) of Social Security accomplishes, other than driving it home to the proles that they're proles.

And given the circles most Congress critters move in these days, I'm sure that most of them know very well that nobody checks how much revenue is coming in before writing the checks for their beach house insurance; Congress authorized the money, so write the check! Ditto wars. A President that checked the piggy bank before responding to an attack on the continental United States would be impeached, and rightly. So the argument that "Congress believes that payroll taxes fund Social Security, and therefore we must say that taxes do that, even though we know that is not true" seems pretty foolish to me; talking to each other, as opposed to the press or their constituents, I don't think Congress believes any such thing.

The concept that payroll taxes fund Social Security only reinforces the second class status of those who work for a living, and especially those who punch a time clock. We should really stop repeating it; that "prpgressives" do repeat it is not, in my eyes, a recommendation....

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okanogen's picture
Submitted by okanogen on

I think this is much more realistic and fair regarding attacking FICA/payroll taxes. The bigger and completely related battle however is over the phrase "entitlements". We are "entitled" to Social Security benefit payments ostensibly because we either personally, or through our family, or through our member of the society, have "paid", via payroll taxes into the SS. That has been equated with "entitlement" due to actually being a living human being in our society endows us with rights to actually survive. So that particular phrase is now a RW badge of shame in the Ayn Rand sense.

We all know this, right?

okanogen's picture
Submitted by okanogen on

Are you assuming that "progressives" have even heard or understood MMT or its implications? If so, I submit you are incorrect, because I have been working very hard to explain this to many, many people for a good two years or so.

In my opinion, it is our job to propogate the truth, rather than bitch about whether someone sufficiently "critical", or propogating "memes". YMMV.

Have you propogated a meme lately? If not, why not?

Submitted by dirac on

No, that was my point that progressives (I usually don't like them) don't. Yes, in fact my mileage does vary. And i can bitch about anything I damned well please. There's a meme--about as useful as bitching about other so-called progressives. Does "defaulting to kindness" have an equanimity component?

okanogen's picture
Submitted by okanogen on

Maybe they believe that FICA withholding goes into the SS trust fund because it is a fact (paygo is not a fact as you rightly point out). While it doesn't need to be done that way, and SS payments could be a plain distribution ala MMT, it isn't done that way right now. Silly progs, believing "memes" that are annoyingly factual.

Regarding bitching about it, I'm not the bitch police, bitch about anything you want. Plenty enough of that here.

danps's picture
Submitted by danps on

I used to think having that as an enumerated item on paychecks was the wingnuts' way to erode support for Social Security ("look what Big Government is confiscating from you to prop up this unsustainable Ponzi scheme!") But more and more I think it has the opposite effect. To the extent people notice it, it sends the message: Social Security is an earned benefit; you have paid for it. As opposed to, say, beachfront property flood insurance or wars. Those come out of the kitty.

Pedanticish correction: the payroll tax doesn't "only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding," all workers pay it. Those making over 105k up to that level as well, but not beyond it. Hudson's description makes it seem even less progressive than it already is.

Also, Hudson has no support for this: "The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth." It's possible that those who structured the program that way did so for reasons Hudson cannot (or is not willing to) grasp. Itemizing it on paychecks may not actually reflect how taxes are collected and distributed, but it puts literally before people's eyes the message "this is not an entitlement."

As a more general note, I'd offer the following to MMT proponents: Do a better job explaining the downside/limits of the theory. As someone who's had some exposure to it but not been immersed in it, I think there's a tendency for proponents to frame it in terms that come across as "taxes are irrelevant / free money for everyone." Acknowledging the hazards of it, whether it be inflation, devalued currency, etc will make it seem a little more grounded. If there are no downside risks acknowledged, or they are dismissed as trivial, MMT might come across as a bit too magical for most people.

And as an even more general note, those who fancy themselves steely eyed realists who deal in truth and not memes are as prone to blinkered, ideologically driven thinking as anyone else. Declaring oneself the possessor of True And Unclouded Sight does not make it so.