At the New York Times‘ Opinionater blog, Tom Edsall makes a very comprehensive case for dealing with the solvency issues of Social Security and Medicare via increasing the dedicated revenues supporting them (partially in the case of Medicare) instead of reducing benefits. And he also aims at pretty sharp “J’Accuse!” at Beltway elites who are obsessed with “entitlement reform” but somehow only see benefit cuts as legitimate ways of accomplishing “reform.”
The basic facts on the regressivity of federal payroll taxes are generally known, but Edsall brings them into sharper relief:
The Medicare and Social Security taxes are jointly known as FICA (for Federal Insurance Contributions Act) — or payroll — taxes. The combined FICA taxes are highly regressive. The non-partisan Tax Policy Center found that the poorest quintile pays a 7.3 percent FICA rate, while the top quintile pays 6.8 percent. The top 1 percent of the income distribution pays a 2 percent rate, and the top 0.1 percent pays just 0.9 percent. In other words, the rate paid by the poorest quintile is 8.1 times as high as the rate paid by the top 0.1 percent.
Simply lifting the cap on the Social Security portion of FICA would entirely solve that program’s funding shortfall for the next 75 years, according to Congressional Budget Office projections cited by Edsall. That would eliminate the egregiously regressive nature of FICA taxes, but wouldn’t exactly “soak the rich,” particularly since these taxes only apply to earned–not investment–income.
Edsall is less specific in the kinds of revenue measures that could be applied to the Medicare portion of the payroll tax, which does not have the arbitrary “cap” applied to Social Security taxes. But he’s right that this whole subject rarely appears in discussions of “entitlement reform.”
As someone who does not consider Social Security and Medicare to be sacrosanct programs progressives are not allowed to consider changing because that represents “playing on the other team’s turf” or some other violation of slippery-slope fears, I find Edsall’s piece important not just because he offers an alternative to benefit cuts–but because he challenges the straitened definition of “entitlement reform” that makes the whole topic inherently partisan and impossibly ideological. Finding ways to reduce health care inflation, which would have a massively beneficial effect on the financing of Medicare, Medicaid, and the entire federal budget, is a form of “entitlement reform.” Boosting payroll taxes is a form of “entitlement reform.” Only when the term stops being ill-disguised code for a particular type of “reforms” favored by conservatives and Beltway deficit hawks from both parties can we have a real discussion on options for maintaining the solvency and effectiveness of the social safety net.