Arnold Kling  

Social Security Political Economy

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Tyler Cowen writes,


Why might you think that the elderly deserve a greater share of resources in society? Here are some options...

2. The relevant political alternative is lower marginal tax rates for the well-to-do. Transfer resources to anyone but them, whenever you can...

I suspect that some version of #2 is what motivates most liberals.


I think that this is a basic reason why it is difficult to make the case against big government. The Left argues as if the marginal dollar into the Treasury always comes from Bill Gates. So, cutting Medicare would be viewed as regressive, even though in reality Medicare taxes are partly borne by low-paid workers, many of whom lack health insurance themselves.

For Discussion. If you believe that taxes on the rich are a good thing, and you believe that at the margin we can always raise taxes on the rich, then what is the implied cost of any government program?


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CATEGORIES: Social Security



COMMENTS (5 to date)
Dezakin writes:

If you believe that taxes on the rich are a good thing, and you believe that at the margin we can always raise taxes on the rich, then what is the implied cost of any government program?

Campaign financing by the rich.

I feel that the question is a bit loaded. I don't believe taxes on anyone are a 'good thing.' But insofar as taxes are necissary to fund government, the rich are far more prepared to weather the burden than the poor.

Also the poor plough as much as possible into consumption, while the rich can only consume so much before diverting income into investments.

With the current distortions of the tax code, it would seem to favor the destitute and the very rich, taxing most heavily the middle and upper classes. The rich can afford to structure their wealth into long term capital accounts and take advantage of capital gains tax benifits, while those of us who have to work for a living are pushed into the middle and upper marginal tax brackets or the AMT.

Now I don't have the numbers to back this up, and would be interested to know if I'm wrong.

But what really would the economic effect be of taxing only the rich? Such that the marginal rate below say (pulling my dartboard out) 150,000 is zero, and above that is say 40% and we're willing to make the necissary cuts in spending to have such a plan be affordable?

Did I wander off topic?

Andrew Martin writes:

I think much of the Robin Hood ideology espoused by the 'liberals' (obviously we're not talking about trade liberals) comes from the realization that many forms of taxation are regressive, and thus have less of an effect the deeper your pockets are. There's the sales tax, gas tax, liquor tax, and cigarette tax to name a few. The distress among liberals lies in the shifting balance toward this type of taxation. Here in North Carolina, the political vogue has shifted toward the regressive revenue streams. George Bush was first elected in the worst possible conditions for the poor taxpayer. Our state deficit was exploding, income tax revenues were falling, and federal funds weren't coming to help. Increases in income tax rates were now political suicide. To make up for the shortfall, our state has passed increases in its gas tax and sales tax. Now the legislature wants to raise the sales tax again to finance hurricane relief down east, and they want to introduce a lottery (another regressive revenue stream). Compound this with an administration at the federal level that spends wildly on its military while promising to cut back on almost every social program ever instituted and you'll see why 'liberals' are screaming.

The solution is prudence. Spending cuts need to be made, but made across the board (defense programs included). Of what use is a missile defense system against a suitcase dirtybomb? Other than as further evidence that George Bush doesn't respect agreements made by our previous representitives, and as further arguments against American hegemony?

These huge budget deficits must be financed, but financed fairly. Many people ignore that this administration has done more to complicate the tax code than it has done to simplify it, despite campaign promises to do better. If this administration does half of what it promised during both campaigns, not only would it be an admirable effort, but a startling reversal.

As for Medicare, the whole Healthcare pricing system, and the system's priorities, need to be thoroughly re-examined. How can we expect the retirement age to remain the same when life expectancy is so much higher now? Should we continue to pour money into options that may extend life but only with heavy costs to quality of life? How can prescription drugs become affordable without throwing patent law and incentives for innovation out the window?

These are questions that I am unqualified to answer, but the answer must be financed in a way that is equitable. The ultimate goal for policies I endorse are policies which promote prosperity for all. Policies advanced by this administration have so far come short of that goal and, to a certain extent, have moved backward.

Randy writes:

Good question. Something a little off topic but maybe all you economics gurus can help me out.

I don't think that, in real terms, the rich pay taxes at all. The upper classes (middle/middle to upper) simply adjust for taxation. That is, their standard of living remains constant regardless of tax rates. It is the lower classes who actually bear the burden of taxation through higher prices, lower wages, and lost job opportunities-to which they lack the power to adjust.

While the "progressive" can always point to some person who has been helped by "income redistribution", in most cases that person would have been better off had the government not caused the situation in the first place. In short, progressive taxation is a myth. All taxation is ultimately regressive.

Thoughts?

Lawrance George Lux writes:
If you believe that taxes on the rich are a good thing, and you believe that at the margin we can always raise taxes on the rich, then what is the implied cost of any government program?blockquote>

Arnold,
You have a tendency to reflect your anti-Liberal bias by the phrasing of the questions. The answer is simple: The Government program has differing effects based upon whether it is a primary or secondary program. A primary Government program will generate about 15% of all Business Profits accurred through Retail Sales(paying about 12%actual of the Population some 15% of their Income). A secondary program provides Business contracts with high Percentage Profits return, employs Labor, and provides Product and Services. Business Profits overall must be about 9% of the Total Profits.

Intellectual Conservatives should realize every advance of Government programs has led to advances in the Economy. The modern American Economic structure began under and coincident with the expansion of Government. What was the Cart, and what was the horse? The Robber-Barons of the Nineteenth Century achieved little enrichment of the American Economy, and absolutely no health standards for American society; while it was left Teddy Roosevelt and Liberals to raise the standard of living of Americans. lgl

Larry Jones writes:

Since nobody wants to answer the question that Arnold actually asked: given the assumptions you provided, the implied cost of any government program has no upper bound.

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