Nov 26, 2012

F.I.C.A. Is New Deal Machiavellianism?

     From Russ Douthat at the New York Times:
Payroll taxes are a relic of New Deal Machiavellianism: by taking a bite of every worker’s paycheck and promising postretirement returns, Franklin Roosevelt effectively disguised Social Security as a pay-as-you-go system, even though the program actually redistributes from rich to poor and young to old. That disguise has helped keep Social Security sacrosanct — hailed by Democrats because it protects the poor and backed by Republicans as a reward for steady work. 

But the costs of this disguise have grown too great to bear. Whatever its past political advantages, the payroll tax now imposes an unnecessary burden on a stagnating economy. In an era of mass unemployment, mediocre wage growth and weak mobility from the bottom of the income ladder, it makes no sense to finance our retirement system with a tax that falls directly on wages and hiring and imposes particular burdens on small business and the working class.
     First, Douthat is simply wrong to say that Social Security was disguised as a pay as you go system. He's got it backwards. Social Security is disguised but the disguise is that it appears to be a pre-funded retirement system when it is actually a pay as you go system. Douthat spent too much time coming up with the eye-catching phrase, "New Deal Machiavellianism", and too little time thinking about what he was saying.

     Second, Douthat goes on to say that he thinks that it would be a good idea to means-test Social Security. I doubt that idea will go over all that well even with those who generally want the federal government to do more income redistribution.

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