Professor Shoven noted that the current structure of Social Security in some cases amounts to a pure tax on those who work for more than 35 years in order to transfer those funds to individuals who retire early. He suggested that one change we should consider would be to recognize the status of “paid-up workers.” The idea is that if you’ve already put in 40 or more years of paying into Social Security, at that point your personal Social Security bill would be declared to be paid in full, and neither you nor your employer would be asked to make any more Social Security contributions for as long as you continue working. This would create more incentive for older citizens to keep on working and for employers to want to hire them.
Does this apply to young workers any less than it applies to workers over 65? Let’s face it, the payroll tax is a tax on market work. In my opinion, there is no reason to discourage market work. Off hand, I would say that the payroll tax is the most anti-Pigouvian tax that we have. That is, it taxes something we want to encourage, when Pigou argued that we should tax things that we want to discourage.
You can also argue against capital gains taxes because we don’t want to discourage saving or investment, and against sales and consumption taxes and tariffs because we don’t want to discourage specialization of labor or trade.
But the trouble with taxing only things we want to discourage is that you can’t fund a multitrillion dollar budget that way. The things we want to discourage slightly aren’t lucrative enough, and the things we want to discourage totally cost more in enforcement than they’d bring in in revenue.
It sounds silly to say that we tax work and investment and trade due to Willie Sutton economics, but what’s the alternative?
Consumption tax? Property tax? VAT?
The things we want to discourage slightly aren’t lucrative enough, and the things we want to discourage totally cost more in enforcement than they’d bring in in revenue.
There are plenty of things “we” want to discourage slightly, such as petroleum, alcohol, tobacco, gambling, pornography, “carbon”, pollution, etc. Taxes on these could easily pay for all the government we need.
“Willie Sutton economics”
Right. We tax it for no better reason than that’s where the money is.
Depending on who you ask, the way that capital gains taxes kick in when the transaction is made is a feature or a bug, A popular idea is that taxing that way creates stability and it follows that it is good, a natural attitude for people whose gut feeling is that markets are naturally bad, but otherwise a little hard to understand. To me it seems largely insane. By and large people in free markets end up averaging out to useful and efficient decisions, and while throwing sand into the gears can be right by accident a significant proportion of the time (because people do indeed make mistakes a significant fraction of the time) still the very rewarding way to bet is that the sum of the market decisions is very useful.
If it is a not a feature but a bug, on the theory above that the transactions it suppresses will naturally tend to be good rather than the bad Progressive bogeyman ZOMG capitalistic unstable nascent deaththroes that it is supposed to suppress, it’s a very anti-Pigouvian bug, maybe one to rival the payroll taxes. And I don’t know whether it is as enormous as the payroll taxes, because payrolls are awfully large, but it’s pretty big.
It also tends to subsidize getting more education by that structure, since it only counts what you pay in for your X best years.
IMO A progressive consumption tax would be best and it would encourage saving so less need for SS. SS could then pay out the same to all people over some or maybe a basic income guarantee could be used to replace SS. It is still a tax on market work to some degree but I do not see anything better.