In defense of the regressive payroll tax

Brad DeLong, Irwin Stelzer and many others complain that the payroll tax is unfair because it is regressive.  True, but twice misleading. 

The payroll tax is regressive but benefits are progressive and on net
the social security system is progressive – a 45 year old male with an income twice the
national average, for example, will in present value pay into the
system $243,700 more than he will receive in benefits (Murphy and Welch, 1998, Table 2 (JSTOR)).   (Part of this net loss comes from progressivity and a larger part from the fact that all currently young workers will pay more in present value taxes than they will receive in benefits).

More fundamentally, if you want to complain about the regressivity of the payroll tax, go ahead, but then you ought to admit that the social security system is a welfare program and defend it, and reform it, on those grounds (as usual, Tyler has the right idea).

It makes sense to complain about a regressive welfare system but it makes no sense to complain about a regressive social insurance or forced savings program.  Is the unemployment insurance system unfairly regressive because construction firms, and thus construction workers, pay higher UI tax rates than professors?  Are IRAs unfair because people who put more in get proportionately more out?


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