Question: Is There a Moral Justification for Use of Payroll Taxes?

[Walter Hart <tracy.hart@cwix.com>]

Question:  Shouldn't the cost of transitioning the current system to a fully funded system be borne by our nation as a whole and paid for with progressive general federal taxes?

Dr. Reischauer has suggested the need to consider transition costs in rate of return comparisons for current workers.  Many current privatization plans limit the amount of payroll taxes used for individual accounts to 2% because the cost of current benefits consumes most of current payroll taxes already.  

In my view this is completely wrong-headed.  

Payroll taxes are regressive taxes.  The only justification for use of regressive payroll taxes to pay current Social Security benefits has been the existence of a social contract, whereby one generation pays for the retirement of the previous in exchange for the promise that the next will pay for it.  That social contract cannot be fulfilled and has been broken.  

There is no further moral justification for use of regressive payroll taxes on the wages of labor alone to fund current or future Social Security benefits.

There does remain a moral obligation to current retirees and to those who have paid into the current system for years.  I believe that moral obligation requires that we, as a nation, keep those people out of poverty.  I support paying a means tested benefit and giving some type of recognition for the contributions of those who are not yet retired.  

The moral obligation to those in the current system is a moral obligation of our nation as a whole, and not just a moral obligation of those earning wages up to the current income cap. Whatever is paid to current retirees or to those who have contributed to the current system, should be paid for with a progressive general federal tax and not by a regressive tax on the wages of labor alone.  

There is no moral justification for continued use of payroll taxes to pay Social Security benefits.  To do so is to require the poorest and lowliest among us to fund a national obligation with no valid promise of similar benefit in return.

Walter Hart