Friday, June 27, 2014

Brown: “Why Do We Fund Social Security Differently From Other Government Programs?”

University of Illinois economist Jeffrey Brown, writing in Forbes, asks why we fund Social Security through a dedicated payroll tax while most other government programs are supported mostly from income tax revenues. The answer, he says, isn’t economics as much as politics:

The political rationale for using the payroll tax traces back to the program’s origins.  President Franklin Roosevelt famously quipped:

“We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

In short, FDR designed the payroll tax system to ensure its political sustainability.  Were it viewed as just another social welfare program, it would be forced to compete more directly with other programs for scarce public resources.  Instead, Social Security was structured to have the look and feel of an insurance contract that establishes a “legal, moral and political right” to receive benefits in the future.  It is fair to say that the fierce political resistance to cutting Social Security benefits is evidence that President Roosevelt knew exactly what he was doing.

Click here to read the whole article, which is very interesting.

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