Somewhere in the political swamp someone has suggested replacing the payroll tax with a VAT and the political left is going bonkers. Calm down, this isn’t even a new idea. The Social Security Administration did research on this twenty-five years ago.
Far more interesting is the political left’s rationale on this. Who is a stronger supporter than liberals, who talks about how vital Social Security is to millions of Americans, who wants to improve the benefits and have only a small percentage of Americans pay for it? Go check Bernie Sanders tweets on this subject.
I agree that Social Security is vital and most Americans have become dependent on it, but read the logic below. Changing how it is funded will “weaken public support.” “Further rationale for cuts?” Public support for a vital program ingrained in our society and providing an income promise for every American will be weakened simply based on how it’s funded? How many federal programs are funded other than by payroll taxes and support for those programs has hardly eroded?
And speaking about that, Social Security is no longer funded by payroll taxes because those taxes that the left holds so dear are not high enough to sustain Social Security. Social Security today is funded by a combination payroll taxes, income taxes on a growing number of beneficiaries AND by billions of dollars in interest on the Treasury Bonds held by the trust.
Social Security is a social insurance program and by definition there is no direct relationship between premiums (taxes) paid and benefits collected. The benefits ultimately received are based on earnings, the formula is skewed to provide a higher benefit releative to earnings to lower income individuals. People do not “receive benefits based on what they paid.” A good example of that is two people with the same earnings record. IF ONE IS MARRIED AND ONE IS NOT then one of them receives 50% more in benefits while they paid exactly the same in taxes. There are several other examples.
If funding Social Security by some general tax such as a dedicated VAT means there would be further rationale for cuts in benefits, it must mean that the true cost, financial condition and affordability of the program is not accurately explained to people who have been intentionally mislead to believe that their payroll taxes are paying for their benefits so “hands off MY Social Security!”
I didn’t pay for the benefits I am collecting and neither did anyone else.
But the debate doesn’t stop there. Social Security advocates argue that overhauling the program’s finances would undermine it in the long run.
The thinking goes like this: Right now, people feel a strong attachment to Social Security, because they pay into it and receive benefits based on what they paid. If you break that connection, support for the program could erode over time.
“Reducing the linkage between what people pay for Social Security through the payroll tax and the benefits they get out would in the long run weaken public support for Social Security,” Paul Van de Water at the left-leaning Center for Budget and Policy Priorities told me. “And [it would] provide a further rationale for cuts in benefits.”
That’s a hard idea to quantify, but polling suggests that Americans are okay with paying for Social Security because they see it as a valuable program for themselves and others. The uncertainty of how their feelings might change if they don’t pay for it directly anymore is what makes advocates nervous.
Excerpt: Vox.com 4-12-17