tag:blogger.com,1999:blog-7334408760351487944.post4482079392461329750..comments2023-11-12T06:43:00.060-05:00Comments on Notes on Social Security Reform: (Bad) Idea of the Day: Eliminate the Employer Social Security Payroll Tax CapAndrew G. Biggshttp://www.blogger.com/profile/16617460431856611873noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-7334408760351487944.post-50077248537991279682008-05-14T13:04:00.000-04:002008-05-14T13:04:00.000-04:00The idea that wages are set by marginal productivi...The idea that wages are set by marginal productivity may be perfectly logical and (some would think) intuitive but it is both in a historic sense and in the modern day nonsense. Wages like other prices are set on the basis of 'what the market will bear' which in turn is affected by all kinds of variables external to productivity from marketing/advertising to state coercion.<BR/><BR/>For employers wages are a cost like any other to be paid at whatever price clears the market. In scarce or expensive (in terms of cost of living) labor markets the price will be higher, in crowded or cheap labor markets the price will be lower. The notion that overall labor costs are matched to an employers perceived calculation of how much that labor contributed to productivity may be theoretically useful but I think would leave most real world bosses and workers befuddled. You have price, you have cost, and you have profit. Employers will do what they can to control the first two in hopes of maximizing the latter. Clearly productivity is a cost factor but thinking it is determinative of actual wages could only be convincing to a freshman Econ 101 student who never in fact had a real job.<BR/>__________________<BR/><BR/>That being said a cap increase on either the employer or employee side is an extremely stupid idea. Social Security is currently is surplus, simply increasing cash flow through it just adds to total debt in terms of future interest owed. If there was a proposal on the table to take these increased revenue flows and invest them in outside assets (my choice would be transportation bonds) this proposal would make marginal sense. As it is it simply seems to not understand the mechanics of Social Security finance as it exists in 2008 and is projected to exist until 2017. There is a fatal confusion of accounting and cash flow going on here.<BR/><BR/>It would also be helpful if they were using 2008 numbers (1.7%/$102,000) instead of 2007 numbers (1.95%/$97,500). The Reports are readily available in two electronic and one paper form, it is inexcusable to propose Social Security policy without checking the most recent data.Bruce Webbhttps://www.blogger.com/profile/13222670342780912788noreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-80526522647622382072008-05-09T03:27:00.000-04:002008-05-09T03:27:00.000-04:00Andrew,Great post. Very well said, particularly:"i...Andrew,<BR/><BR/>Great post. Very well said, particularly:<BR/><BR/>"in a competitive economy an employee is compensated according to his contributions to the business (technically, the marginal product of his labor)...[W]hat happens if the employer share of the payroll tax is increased? The employer simply reduces other parts of the employee’s compensation to make up for it."<BR/><BR/>Perfectly logical and (one would think) intuitive.<BR/><BR/>And great additional point re: reducing non-Social Security tax revenues.<BR/><BR/>I don't usually comment on blogs just to praise the host (I'm much more likely to raise questions, challenge or outright disagree), but I've just discovered your blog and I just want to say thanks for a great post (the first one of yours that I've read).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7334408760351487944.post-34629329730579045812008-05-07T18:36:00.000-04:002008-05-07T18:36:00.000-04:00While I actually agree with the conclusion I am no...While I actually agree with the conclusion I am not sure about the reasons.<BR/><BR/>I believe most people making over $200K do have significant control over their own salary.<BR/><BR/>But the real issue is that when you accept that SS is retirement insurance, you should also accept that at a certain level of income an earner does not really need an increasing level of insurance.Arnehttps://www.blogger.com/profile/00796151499106650732noreply@blogger.com