April 23, 2015
That’s not exactly what Samuelson said, after all a 12 percentage point increase in the income tax would take a lot of money from rich people. Samuelson told readers that increasing the normal retirement age for Social Security by an additional two years between now and 2027 (it is already scheduled to rise to 67) “wouldn’t impose major hardship.” Raising the normal retirement age by two years is effectively a 12 percent cut in benefits. (For orientation, the average Social Security benefit is less than $1,300 a month.)
Since Social Security is more than 90 percent of the income for one third of retirees this would be equivalent to almost a 12 percentage increase in the income tax for this group. It’s more than half of the income for two-thirds of retirees, which means that Samuelson’s proposal would be equivalent to a tax increase more than 6 percentage points for this larger group of seniors. By comparison, the Republicans claimed that President Obama’s proposal to raise the marginal tax rate by 4.6 percentage points on the rich would be devastating.
The context is Samuelson’s praise for New Jersey Governor Chris Christie’s proposal to phase in an increase in the normal retirement age for Social Security to 69, which he proposes to phase in by 2034. Samuelson wants it done immediately. Samuelson also applauds Chrstie’s proposal to phase out benefits for seniors with incomes between $80,000 and $200,000. This would have the same incentive effect on these seniors as an increase in the income tax rate of 25 percentage points.
Since it affects relatively few people, and would provide a substantial incentive for evasion and avoidance, this proposal would have little impact on the finances of the program, although it would likely help to undermine political support since it would no longer be a universal program. The cutoff for benefit cuts could also be gradually lowered as the promised savings are not realized. It is also worth noting that the $80,000 cutoff for being wealthy in the context of Social Security cuts, and also Christie’s proposal to cut Medicare, is one-fifth of the $400,000 cutoff set for the higher income tax rates put in place in 2013.
But the most striking part of Samuelson’s piece is that these cuts to Social Security are supposed to be part of a drive for “generational justice.” Samuelson complains that:
“Boomers’ children and grandchildren would pay for these more generous benefits [Social Security and Medicare] while their own future benefits would drop.”
Actually, this is not true, since even if nothing is ever done to address the projected shortfall in the trust fund, the payable benefit to our children and grandchildren would still be higher than the benefit people are receiving today in real terms. (It would be lower relative to their projected wages.)
However it is also difficult to understand the problem with raising the tax rate on our children and grandchildren to pay for the higher benefits they will be receiving for longer periods of time. After all, baby boomers are paying much higher tax rates than their parents and grandparents did. Furthermore, the Social Security trustees project real wages will be on average more than 50 percent higher in thirty years than they are today.
There is an argument that a tax increase will impose a hardship because most workers will not share in this projected wage growth due to the continuation of the current trends in wage inequality. But this would point to the importance of addressing intra-generational inequality, not focusing on the comparatively small issue of the prospect of higher Social Security taxes. (It is worth noting that only about 10 percent of the population noticed the two percentage point increase in the payroll tax at the start of 2013. This was a very large single year tax increase that was put in place in a weak labor market.)
It is difficult to see the injustice if our children or grandchildren have a before-tax income that is 50 percent higher than us, but pay two percentage points more in Social Security taxes so that their after-tax income is only 48 percent higher. But Chris Christie and Robert Samuelson don’t want us to pay attention to what happens to before-tax income, they would instead prefer to have children fight with their parents over $1,300 a month in Social Security benefits.
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