Thursday, March 17, 2011

Should Social Security continue to be funded only by the payroll tax?

At, the New America Foundation's Michael Lind makes the argument that the current practice of funding Social Security only through payroll taxes is a major impediment to enacting reform:

The almost certain lack of political support for major benefit cuts and/or major payroll tax increases means that the shortfall in Social Security revenues cannot be solved according to the assumptions underlying today's bipartisan debate. The assumptions of the debate must therefore be changed. At some point in this century, Social Security must be funded by both the payroll tax and another stream of tax revenue.

Although the architects of Social Security in the 1930s assumed that general revenues would become necessary at some point, most liberals and conservatives today oppose the idea of making up the future Social Security payroll tax shortfall with other taxes. Liberals are afraid that weakening the link between payroll tax contributions and benefits would undermine the legitimacy of Social Security. Conservatives don't like the notion of shoring up Social Security with non-payroll tax revenues because they would prefer to abolish Social Security altogether, for reasons of right-wing ideology. Failing that, they prefer to use the inadequacy of the payroll tax as an excuse to shrink the program as much as they can, in the name of "saving" it. 

There is, of course, the possibility that – in addition to conservatives "right-wing ideology" – they actually share some liberals concerns that shifting away from the payroll tax will make Social Security appear more like a "welfare" program, as well as undermining the financial discipline that a dedicated tax provides. But Lind nevertheless makes a good point. Whether the pros of shifting away from solely payroll tax funding outweigh the cons, I don't know, but it's something worth thinking about.

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