Martin Wolf argues that payroll taxes are both regressive and job destroying. But this is true only to the degree that the tax exceeds the benefit that the tax generates. In the U.S. there’s a fairly direct link between Social Security taxes paid and benefits received, at least for the primary earner in a household. And given the general progressivity of the benefit structure, the net tax rate – that is, taxes net of benefits, relative to earnings – is well below the statutory rate and fairly progressive. For low earners the net tax rate is almost always negative, meaning that they get a significant subsidy from the program and therefore should see the combined tax/benefit structure as an incentive to work, not a destroyer of jobs. In other countries the tax/benefit link may be weaker, but in the U.S. it’s strong enough that I think the two need to be considered jointly.

Andrew G. Biggs
Resident Scholar
The American Enterprise Institute

Congressman Boehner may or may not understand the incentive effects of an explicit means-test on Social Security benefits, but the other Congressmen (and their staffs) who have actually designed Social Security legislation do. As far as I know there isn’t a single reform proposal that relies on an explicit means test, meaning the government examines your income/assets in retirement and reduces your Social Security benefits if they rise above a given level. (See here for a list of proposals.)

Rather, all reform plans that reduce benefits for high earners do so on a prospective basis based on lifetime earnings, not income in retirement. For instance, President Bush’s proposal would simply have made the program more progressive, by paying current law replacement rates to individuals with lower lifetime earnings but lower replacement rates to those with higher lifetime earnings. While the effect on benefits may be the same, the incentives are focused more as a negative income effect than a substitution effect. In contrast to an explicit means test, you could expect that many middle/high earners would increase personal saving to make up for the difference in their Social Security benefits.

Andrew G. Biggs
Resident Scholar
The American Enterprise Institute

- Larry Willmore

1) Hayek and his mentor Mises were in staunch opposition to the bureaucracy. When conservatives say government they mean bureaucracy.

2) Medicare is insufficiently privatized to prevent the rise of bureaucracy.

3) Medicare as a proxy to force a shortage of services, or drive out market services, or to manage the scarcity of care such that the middle and upper classes cannot use their assets to purchase services, is not redistribution, or transfer payments — it is a managed economy and that is socialism.

And your argument that casts either conservatives or libertarians, and Hayek in particular against transfer payments rather than against the bureaucracy and loss of choice is either disingenuous or ignorant or both.

If I am overly harsh it is only to instill enough annoyance to encourage literacy.