Paul Krugman, responding to folks who pointed out that having nearly half the population not pay income taxes might not be quite right, says
"The thing to bear in mind is that overall, the US tax system isn't actually that progressive: the payroll tax is regressive, as are most state and local taxes, which largely offsets the progressivity of the income tax."
I'll limit myself here to payroll taxes. (It's not clear to me that state income and property taxes are regressive, although sales taxes are.) Social Security taxes, as Krugman may or may not be aware, fund a thing known as Social Security benefits. Analysts of this system consider them together in order to determine whether the program is or isn't progressive.
One way they do it is by calculating what's called the "net tax rate"—that is, the statutory 12.4 percent Social Security tax paid by workers minus the benefits they receive from the program. If you receive benefits equal to your taxes, then your net tax rate is zero. If you pay more in taxes than you receive in benefits, your net tax rate is positive; likewise, if you receive more benefits than taxes your net tax rate is negative.
This chart, which I calculated using the Policy Simulation Group's GEMINI model, reports net tax rates for recent retirees, broken down by quintiles of lifetime earnings. What it shows is that the highest-earning 20 percent of individuals—the fifth quintile—pay a positive net tax rate of 3 percent of lifetime earnings.
The other 80 percent pay negative net tax rates, meaning that they tend to receive more in benefits than they receive in taxes. (For anyone looking forward to this in the future, just bear in mind that the program is insolvent.) The lowest-earning fifth of the population has a negative net tax rate of almost 27 percent, which implies that they receive far, far more from Social Security than they pay into the program.
Call me picky, but what I'd like to see from tenured Ivy League professors and Nobel Prize winners is that it takes more than, oh, 30 seconds to figure out the obvious flaw in their arguments. Maybe next time.
Here's another way to put it: if we're looking at Social Security taxes and benefits in isolation, then yes, Social Security taxes are regressive. But then, Social Security benefits would have to be considered a form of welfare, rather than earned social insurance. The key to the program from FDR's time, I've argued, was that there was some link between the two. If so, we should think about them in those terms.