Indeed, the Social Security debate so far has been a rare triumph for liberals: For the first time in a long while, core liberal principles are actually winning in a public debate. The idea that Social Security is an insurance program and not an investment plan is gaining traction.
Why E.J. Dionne thinks deception is a “core liberal principle” totally eludes me. Here are two options about Social Security as insurance.
(1) It is not insurance.
(2) It is “insurance,” in some loose sense. But then so is (a) means-tested welfare or (b) mandatory personal retirement accounts plus a safety net.
If (1) is true, then Dionne’s claim is a lie. If (2) is true, then saying that Social Security is insurance does nothing to tell us why we ought to prefer the status quo over (a) or (b). As it happens, there is NO “core liberal principle” that I can think of that supports the fevered defense of America’s badly structured historic welfare programs.
Check this:
* The Social Security tax is regressive.
* The overall benefit structure accomplishes, on net, either no downward income redistribution, or a small amount of upward redistribution. (I.e., it is either close to a wash, or regressive, redistribution-wise.)
*The system is structured to disadvantage current workers over current retirees, and is thus invalid as a “compact” between generations, if we take the contract metaphor seriously.
* Because the Social Security tax hits least wealthy workers hardest, Social Security prevents many from accumulating wealth, and reinforces the divide between investing an non-investing classes.
*Social Security makes it impossible for many of the least wealthy to accumulate wealth that they can pass on to their children or grandchildren, thereby helping to perpetuate generational inequality.
It is crucial to note that whatever else it might be, Social Security is not PRIMARILY insurance, if it is insurance at all. The redistribution to the elderly poor it does manage to effect is incidental to the huge volume of transfers back and forth from within the same income bracket. (Net income-related redistribution come to less than 10% of total transfers) There’s a huge amount of deadweight loss in all this pointless churn.
A system of personal accounts plus a means-tested safety net would:
* Be more progressive in every way.
* Eliminate most of the unjust intergenerational transfers that are at the heart of the current system.
* Almost entirely close the gap between the investing and non-investing classes.
* Help the least wealthy workers accumulate inheritable wealth.
* Protect the elderly against poverty AT LEAST as well.
All this is independent of the fact that the “insurance” language amounts to a “noble lie” that ought to be anathema to liberals.
Consider James Buchanan’s analysis of Social Security as a “fiscal illusion,” which is an idea he credits to the obscure Italian public finance theorist Amilcare Puviani. According to Buchanan, following Puviani, those with political power will often erect a structure of public finance that is meant to cause “tax payers to think that the taxes to which they are subjected are less burdensome than they actually are” and “make beneficiaries consider the values of public goods and services to them to be larger than may actually be the case.”
Here is what Buchanan says about Social Security in particular:
Social Security Taxes. The modern American system of old-age and survivors “insurance” seems ready made for the Puviani criticism. It is apparent to almost everyone, without detailed analysis or knowledge of the system, that the effects of promoting the institutions under the “insurance” rubric, which implies actuarial independence and integrity, tends to conceal from participants the real flows of costs and benefits. Whether or not such was the deliberate intent of the founders of the system need not concern us here. The facts are that the system, as an independent trust-fund account outside of the regular budgetary procedures of the federal government, is not actuarially sound by private financial standards, and that the plan will depend for its continued existence on the Treasury’s willingness to finance currently claims made against the system. Contributors to the system finance only a relatively small share of the benefits that they receive, especially to this date (1966), and the remaining funds must be secured from current taxes collected from prospective beneficiaries. To the extent that the current contributor accepts the regular increases in his own taxes, as well as those nominally levied on his employer, under the assumption that, on balance, these are to be accumulated for support of his own retirement benefits, he will be less resistant to such increases than if he knew that such tax increases were simply required to meet current outpayments to beneficiaries. He operates under an illusion of the Puviani sort. If future claims against the system should be properly discounted, along with future taxes that are required to meet these claims, the entrant into the system would recognize that, in the net, the costs significantly exceed the benefits, both computed in present-value terms. The fact that there is no widespread resentment or resistance against entering the system supports the hypothesis that illusion is present, and is effective. Even for the employee who may recognize the actuarial bankruptcy of the present system, who is able to dispel the fiscal illusion, it may not, however, be rational to reject the scheme when he predicts that, during his own period of retirement, other prospective entrants can still be attracted by illusory claims of “insurance.” The system in this manner provides a continuing means through which income transfers can be made to the aged from the currently productive elements of the population, which can be “explained” or “rationalized” to many taxpayers on the basis of contributory schemes of retirement protection. There seems little question but that, if the same fiscal transfers were proposed openly and without attempts at illusion, there would be significantly greater political resistance. This conclusion can be attained, regardless of one’s own value position on the quite separate question as to whether such transfers should be decreased, kept the same, or increased.
Compare Buchanan’s analysis with a key idea from another of the 20th Century’s great contractarian political theorists, John Rawls:
if the basic structure relies on coercive sanctions, however rarely and scrupulously applied, the grounds of its institutions should stand up to public scrutiny. When . . . basic social arrangements and individual actions are fully justifiable, citizens can give reasons for their beliefs and conduct before one another confident that this avowed reckoning itself will strengthen and not weaken public understanding. The political order does not, it seems, depend on historically accidental or established delusions, or other mistaken beliefs resting on the deceptive appearances of institutions that mislead us as to how they work.
That’s Rawls in Political Liberalism talking about the publicity requirement for just institutions. Just rules for a free people in a liberal society must be open to them and MUST NOT be sustained by illusions that cause people to misunderstand the terms of our association, cripple our ability to govern ourselves through effective public deliberation, and ensure that we remain ignorant of the institutions that shape our expectations for our lives, and condition our preferences and characters.
By pushing the “Social Security status-quo is insurance line” Dionne is directly contributing to the violation of “core liberal principles” that ought to be even more important to welfare-liberals than the fiscally anti-egalitarian aspects of the status quo that Dionne, for some inexplicable reason, thinks are just great.
This is a “triumph for liberals”?!
Welfare iberals keep wondering aloud about what’s the matter with welfare liberalism. Dionne unwittingly points us toward a plausible hypothesis. Welfare liberals have become fetishists of the crumbling institutions of the New Deal/Great Society welfare state, which they mistake for actually existing expressions of liberal ideals. But welfare liberals don’t even understand what liberalism, as an idea, is, and so can’t recognize that their beloved programs fail according to what ought to be their own standards. All they can do to answer the what is liberalism question is to point at an amber-edged policy and say “that!”
Nice post.
Will,
The total income, including all government transfer payments, of the bottom 20% of American families is about $300 billion. Even if they had a 100% tax placed on them, they couldn’t even cover the half the actual federal defecit.
You seem to have a fetish about SS. Doesn’t Rupert Murdoch let you write about anything else?
Will, you are so money.
Incredible non sequitur from monkyboy there. Especially when Will (like the President) is calling for an end to wasteful transfers among the middle and upper class and structing Social Security to make it more progressive. (And pro-work and efficient at the same time.)
Apparently Mr. Dionne’s “core liberal principle” is massive wealth transfers from one person to another, as much as possible, without regard to whether it’s regressive or not. Actually, it is just blind defense of New Deal programs, regardless of worth. The mushy center-left (like indeed much of the center) tends to be generally ignorant or at least unanimated by a particular philosophy.
I suppose the Republicans and their Wall Street masters are pushing Social Security “reform” out their desire to help the poor.
Whether private accounts will help the poor or not depends on many things and is far from certain. What is certain is that Wall Street and the wealthy who currently hold stocks will profit immensely from this scam.
Here is the current breakdown(in quintiles) of family income in America:
I– $345 billion
II- $762 billion
III-$1205 billion
IV–$1738 billion
V—$4223 billion
Even if the total income of the botttom 60% of American families was taxed at 100%, the revenue would not cover the federal budget.
No amount of smoke and mirrors generated by conservative shills like Will can change income distribution in America…
Giving the poor a few looted private accounts while getting rid of the estate tax on the wealthiest 1% of Americans won’t change anything either.
Where to begin? I’ll get asthma from all the straw Will’s been shovelling around.
Characterizing SS as insurance is not, in itself, proof that it is a good thing. Not all insurance is good. But it does render irrelevant the very attacks Will then makes on it. Insurance is not intended to be charity. It is not intended to redistribute income. Insurance (or good insurance) is justified because it is efficient, not because it is redistributive.
Characterizing Social Security contributions as a “tax” is begging the question. If Social Security is a scheme of social insurance, then contributions aren’t taxes, they are premiums. We don’t worry about whether premiums are regressive. If you want to join in the fight to make the overall tax system more progressive, Will, that would be great. But that’s not what Social Security is for.
Your claims about a mandatory defined contribution scheme are just claims. Anyway, implementing such a scheme now does absolutely nothing to deal with the actuarial liabilities of the existing scheme. That can only be done by raising contributions or reducing benefits. But you can raise contributions or reduce benefits without creating a mandatory defined contribution scheme. If you ignore the existing liabilities, of course your defined contribution scheme will pay a better “rate of return.” If I designed a new defined benefit scheme, which just ignored the liabilities of the old scheme, then it would look great too.
The very first generation of retirees maybe got a good deal, but the current retirees don’t take advantage of future generations. That’s just a canard.
Gareth, I guess I didn’t make this explicit it my post. If you’re going to be technical about the meaning of insurance, then SS just doesn’t qualify. If you’re going to be loose about it, and say that SS is insurance because it indemnifies old people against the risks poverty, then so do the alternatives.
Now, as a matter of legal fact, the social security payroll tax is a tax. The Supreme Court ruled that SS was constitutional because it uses, on the one hand, congressional taxing power, and, on the other, spending power under the rubric of promoting the “general welfare.” There is simply no dispute whether or not thhe SS payroll tax is a tax. The question is whether a tax plus a set of non-guaranteed intergenerational transfers counts as insurance in any strict sense. The answer is that it does not. I admit that it is insurance in the loose sense, but then so is everything else, and the regular criteria about progressivity etc. kick in.
The first generation got a phenomenal deal. But there is simply NO WAY that the current cohort of workers is going to get the same ratio of benefits to tax dollar as the current cohort of retirees. THAT IS WHY EVERYBODY IS FIGHTING. Taxes will go up, future benefits will go down, or both. And that is the sound of current workers getting screwed.
Given the current polls, I’d hardly say EVERYBODY is fighting. Just the wealthiest Americans and their lackeys like the Republicans and CATO.
I don’t know the solution to helping out America’s poor, but it sure ain’t the scam you’re pushing…
Monkeyboy, why don’t you respond to Will’s substantive arguments instead of engaging in pure ad-hominem?
Monkyboy wouldn’t know an argument if it bit him in the ass.
Seriously, Will, hasn’t he overstayed his welcome yet? I’ve actually stopped bothering to read a lot of your comments threads because I’m sick and tired of having to scroll past his brain-dead non sequiturs and slanders. He’s already proved he’s not interested in debate; why don’t you start deleting his posts?
What exactly are Will’s substansive arguments, Javier?
Social Security provides one third of retirees with their sole source of income and another third with their main source of income.
Any poll you choose to look at shows only a small minority of Americans want Congress to alter SS.
Not even the right-wingers hide the fact that the push to change SS is funded almost entirely by Wall Street firms.
As posted above, the lowest quintile of Americans have a combined annual income of $345 billion. They also have no net worth.
The highest quintile of American families have a combined annual income of over $4 trillion and about $50 trillion in assets.
The problem is that the federal budget continues to grow and those who can afford to pay for this increase have been let off the hook. We are in debt $8 trillion and growing. The push to “reform” SS is just a smokescreen to draw attention from the crippling effects of Bush’s massive 2003 tax cut.
When Will offers up anything other than lines from Carl Rove’s talking points, I’ll be glad to counter it…
Monkeyboy, you’ve completely ignored the argument Will has repeatedly made: that social security is a deceptive government program, intentionally designed as a noble lie to trick people into supporting it as social insurance. This deception is inconsistent with a committment to public reason. Also, you ignore the point that a well-designed means-tested program might prevent poverty among the elderly just as well as social security does now. Moreover, I think social security’s fiscal problems would still be present (although delayed) even if Bush’s tax cuts were never implemented.
Will might be wrong about all of this, but please address his arguments and show why he is wrong instead of attacking him as a hack.
Monkyboy seems to have a fetish about Will. Doesn’t whoever pays his allowance let him write about anyone else?
Snark aside, two points:
(1) Pointing out that many people who’re taxed heavily with the promise of a future benefit then fail to save and rely on the future benefit proves exactly nothing about how they’d behave in the absence of that program.
(2) Since retirees are often living largely off accumulated assets, focusing on income makes sense only if you’re being intentionally deceptive or obtuse. I’ll assume the former in the case of those who promulgate those figures, but in monkyboy’s case, I think the latter is probably more tenable.
Rawls’s next line immediately following Will’s quote?
“Of course, there can be no certainty about this.”
Political Liberalism, p. 68.
Nice post.
Will,
The total income, including all government transfer payments, of the bottom 20% of American families is about $300 billion. Even if they had a 100% tax placed on them, they couldn’t even cover the half the actual federal defecit.
You seem to have a fetish about SS. Doesn’t Rupert Murdoch let you write about anything else?
Will, you are so money.
Incredible non sequitur from monkyboy there. Especially when Will (like the President) is calling for an end to wasteful transfers among the middle and upper class and structing Social Security to make it more progressive. (And pro-work and efficient at the same time.)
Apparently Mr. Dionne’s “core liberal principle” is massive wealth transfers from one person to another, as much as possible, without regard to whether it’s regressive or not. Actually, it is just blind defense of New Deal programs, regardless of worth. The mushy center-left (like indeed much of the center) tends to be generally ignorant or at least unanimated by a particular philosophy.
I suppose the Republicans and their Wall Street masters are pushing Social Security “reform” out their desire to help the poor.
Whether private accounts will help the poor or not depends on many things and is far from certain. What is certain is that Wall Street and the wealthy who currently hold stocks will profit immensely from this scam.
Here is the current breakdown(in quintiles) of family income in America:
I– $345 billion
II- $762 billion
III-$1205 billion
IV–$1738 billion
V—$4223 billion
Even if the total income of the botttom 60% of American families was taxed at 100%, the revenue would not cover the federal budget.
No amount of smoke and mirrors generated by conservative shills like Will can change income distribution in America…
Giving the poor a few looted private accounts while getting rid of the estate tax on the wealthiest 1% of Americans won’t change anything either.
Where to begin? I’ll get asthma from all the straw Will’s been shovelling around.
Characterizing SS as insurance is not, in itself, proof that it is a good thing. Not all insurance is good. But it does render irrelevant the very attacks Will then makes on it. Insurance is not intended to be charity. It is not intended to redistribute income. Insurance (or good insurance) is justified because it is efficient, not because it is redistributive.
Characterizing Social Security contributions as a “tax” is begging the question. If Social Security is a scheme of social insurance, then contributions aren’t taxes, they are premiums. We don’t worry about whether premiums are regressive. If you want to join in the fight to make the overall tax system more progressive, Will, that would be great. But that’s not what Social Security is for.
Your claims about a mandatory defined contribution scheme are just claims. Anyway, implementing such a scheme now does absolutely nothing to deal with the actuarial liabilities of the existing scheme. That can only be done by raising contributions or reducing benefits. But you can raise contributions or reduce benefits without creating a mandatory defined contribution scheme. If you ignore the existing liabilities, of course your defined contribution scheme will pay a better “rate of return.” If I designed a new defined benefit scheme, which just ignored the liabilities of the old scheme, then it would look great too.
The very first generation of retirees maybe got a good deal, but the current retirees don’t take advantage of future generations. That’s just a canard.
Gareth, I guess I didn’t make this explicit it my post. If you’re going to be technical about the meaning of insurance, then SS just doesn’t qualify. If you’re going to be loose about it, and say that SS is insurance because it indemnifies old people against the risks poverty, then so do the alternatives.
Now, as a matter of legal fact, the social security payroll tax is a tax. The Supreme Court ruled that SS was constitutional because it uses, on the one hand, congressional taxing power, and, on the other, spending power under the rubric of promoting the “general welfare.” There is simply no dispute whether or not thhe SS payroll tax is a tax. The question is whether a tax plus a set of non-guaranteed intergenerational transfers counts as insurance in any strict sense. The answer is that it does not. I admit that it is insurance in the loose sense, but then so is everything else, and the regular criteria about progressivity etc. kick in.
The first generation got a phenomenal deal. But there is simply NO WAY that the current cohort of workers is going to get the same ratio of benefits to tax dollar as the current cohort of retirees. THAT IS WHY EVERYBODY IS FIGHTING. Taxes will go up, future benefits will go down, or both. And that is the sound of current workers getting screwed.
Given the current polls, I’d hardly say EVERYBODY is fighting. Just the wealthiest Americans and their lackeys like the Republicans and CATO.
I don’t know the solution to helping out America’s poor, but it sure ain’t the scam you’re pushing…
Monkeyboy, why don’t you respond to Will’s substantive arguments instead of engaging in pure ad-hominem?
Monkyboy wouldn’t know an argument if it bit him in the ass.
Seriously, Will, hasn’t he overstayed his welcome yet? I’ve actually stopped bothering to read a lot of your comments threads because I’m sick and tired of having to scroll past his brain-dead non sequiturs and slanders. He’s already proved he’s not interested in debate; why don’t you start deleting his posts?
What exactly are Will’s substansive arguments, Javier?
Social Security provides one third of retirees with their sole source of income and another third with their main source of income.
Any poll you choose to look at shows only a small minority of Americans want Congress to alter SS.
Not even the right-wingers hide the fact that the push to change SS is funded almost entirely by Wall Street firms.
As posted above, the lowest quintile of Americans have a combined annual income of $345 billion. They also have no net worth.
The highest quintile of American families have a combined annual income of over $4 trillion and about $50 trillion in assets.
The problem is that the federal budget continues to grow and those who can afford to pay for this increase have been let off the hook. We are in debt $8 trillion and growing. The push to “reform” SS is just a smokescreen to draw attention from the crippling effects of Bush’s massive 2003 tax cut.
When Will offers up anything other than lines from Carl Rove’s talking points, I’ll be glad to counter it…
Monkeyboy, you’ve completely ignored the argument Will has repeatedly made: that social security is a deceptive government program, intentionally designed as a noble lie to trick people into supporting it as social insurance. This deception is inconsistent with a committment to public reason. Also, you ignore the point that a well-designed means-tested program might prevent poverty among the elderly just as well as social security does now. Moreover, I think social security’s fiscal problems would still be present (although delayed) even if Bush’s tax cuts were never implemented.
Will might be wrong about all of this, but please address his arguments and show why he is wrong instead of attacking him as a hack.
Monkyboy seems to have a fetish about Will. Doesn’t whoever pays his allowance let him write about anyone else?
Snark aside, two points:
(1) Pointing out that many people who’re taxed heavily with the promise of a future benefit then fail to save and rely on the future benefit proves exactly nothing about how they’d behave in the absence of that program.
(2) Since retirees are often living largely off accumulated assets, focusing on income makes sense only if you’re being intentionally deceptive or obtuse. I’ll assume the former in the case of those who promulgate those figures, but in monkyboy’s case, I think the latter is probably more tenable.
Rawls’s next line immediately following Will’s quote?
“Of course, there can be no certainty about this.”
Political Liberalism, p. 68.
Declaration of Heaven on Earth!
Chant this prayer & we will have heaven on earth:
Dearest, greatest, holiest!
Please give us all, the full heaven on earth!
I thank you, & I worship you.
For more information, please visit http://www.normism.org !
Declaration of Heaven on Earth!
Chant this prayer & we will have heaven on earth:
Dearest, greatest, holiest!
Please give us all, the full heaven on earth!
I thank you, & I worship you.
For more information, please visit http://www.normism.org !