Tuesday, June 17, 2008

Mickey Kaus on the Obama Donut Hole and Social Security “Welfare”

Mickey Kaus – one of my favorite bloggers and a strong proponent of welfare reform – takes on the question of whether Senator Obama's plan to eliminate the wage cap on the Social Security payroll tax would turn the program into "welfare." (His comments came in response to a post by National Review's Ramesh Ponnuru.)

Kaus's answer: no. The Social Security "work test" – if you don't work, you don't receive benefits – will retain the "earned benefit" component even if overall ratio of taxes to benefits becomes far more progressive.

My answer: maybe. In addition to lifting the payroll tax ceiling, Obama has proposed a tax credit to effectively refund payroll taxes to low earners, despite the fact that the EITC was designed to do pretty much the same thing. Clearly, the program under a President Obama would be far more progressive than it currently is. This isn't inconsistent -- while Democrats generally oppose excessive progressivity on the benefit side, arguing that a 'program for the poor is a poor program', they generally favor increased progressivity on the tax side. In any event, would the "work test" keep a more progressive Social Security program from being seen as welfare? Well, does a work test keep the EITC from being seen as welfare? Probably not, though the EITC has fared much better than welfare programs without a work test. This is more of a sliding scale than a yes/no question; whether the Obama plan pushes Social Security over the line isn't clear, but it clearly moves the program more toward the welfare end of the spectrum.

Kaus asks one other interesting question: Why does Obama propose raising taxes on the rich when he could just as easily get that money by reducing their benefits through a means-test? (Kaus's long-favorite reform policy.) This question was implicitly answered, from a Republican perspective at least, in President Bush's proposed reforms: higher income people care more about their taxes than their benefits, even if they're equal in present value, so it's more acceptable to them to cut their benefits than raise their taxes. My answer to Kaus's question is that there's a limit to how much you can cut the rich's benefits – after all, the maximum benefit paid to a new retiree this year is around $25,000 – while there's pretty much no limit to how much you can raise the rich's taxes. A person earning $500,000 would pay an extra $31,000 each year in payroll taxes under the Obama plan (it's unclear whether he would receive extra benefits for those taxes). So in addition to a general inclination to push progressivity more in terms of taxes than benefits, there may be a practical consideration here as well.


Bruce Webb said...

I think Kaus is missing the strength of the 'welfare' argument. The risk is not that lower income workers will see Social Security as welfare, generally I think they will just take the check, the risk is that middle and upper income workers will see it as such and so undercut political support for the program.

That is why I cast a leery eye on any proposal to means test Social Security or to increase the cap without an accompaning increase in benefits (an explicit feature of LMS btw). The worry is that for this purpose and this purpose only 'rich' will be defined in a way that takes in a broad and influential swath of the middle class in an effort to foment class resentment. I have similar concerns about any proposal which proposes to offset its impacts on the working poor by giving them a payroll tax credit. The risk is that some combination of these approaches will simply convince the middle class that they could do better without traditional Social Security and so better off breaking the social compact forged by FDR rather than simply funding 'welfare' for retired workers.

In these matters the devil is in the details and I am not impressed by arguments that start out asking why we are helping pay for Bill Gates future check. You could confiscate every Social Security check from every billionaire and not only neither would they feel it neither would Social Security, the problem is not the $35,000 x a few hundred (at most billionaires). The question is where does the incidence of the means test start?

Anonymous said...

Kaus answered "If you don't work you don't get Social Security".
W-H-A-T ???????????????????????
Say What ??????????????????????
If you don't work, you don't get Social Security ???????????????
Ahhhaaaahaaaaa, If you don't work, you don't get Social Security, ahhaahhhaaaaa!!!!!!!!!!!!!!!!!!!
Then What is SSI??????Supplemental Security Income???????????????????
It's Like, just under Social Security in the 2nd largest column of highest Social Programs in the United States, and you like don't have ever had to work a single day in your entire life.
And, that's why entire Families are becoming SSI dependent!!!!!!!!
Yes, SSI, is becomeing the fastest and largest income of Families.
It's the wave of the future, free college, can own a paid for home of ANY, ANY, ANY Value!!!!!!!!!!
SSI, is HUGE dude!!!!!!!!!!!!!!!
It's going to grow 10 times faster than Any of the Candidates ever possibly would try and Fix the Problem. Ya, can't. There's going to be millions more newly legalized going straight to Social Security Admin., Offices and lining up by the MILLIONS!!!!!!!!
Wake up Obama, McCain, Congress, SSI is the most Popular thing since Paris Hilton, it's growing beyond the size of Any of the Other Entitlements, You'll see.
Everyone IGNORES SSI, that's why they keep getting away with getting ON SSI, they know nobody's paying attention, nobody talks about the poor SSI's.
They 'think' that you all think they are all these poor little people with nothing.
NOT!!! My neighbors own a home worth $450,000 on 25 acres!!!!
Free and Clear...They are laughing at ya.
How do you think that all those illegals in Los Angeles pay for those really expensive homes?
SSI plus under-the-table.
ALL the people in the household get a check-in-the-box.
And they stack up to half inch THICK!!!
Gad, Wake Up you stupid people, Obama or McCain does not have a CLUE about SSI and it's gluttonous piece of the Tax payer's money.
It's gonna' break the Banko.

Rebekka said...

The post about SSI is ridiculous. You only get it if you meet very strict criteria. It is not something entire families are getting on. You should research before spouting off like a retarded chimp on acid.

In order to get SSI you must be completely, and permanently, disabled; a senior citizen; and/or blind.

Only individuals qualify, not whole families, not unless the whole family fit's the qualifications. And only the qualified individual in the household get's the supplemental income. Furthermore, other income an valuables are counted (i.e-if you have life insurance worth more than $1500...etc), and if you are married, you recieve less.

I have no idea what you are rambling off about regarding a house free and clear. The program doesn't buy houses for people.