GWB vs. FDR

Brad DeLong points us to this strange essay from Jonathan Rauch in The National Journal.

Rauch notes that there is no "crisis" facing Social Security and that President Bush's proposals all seem like solutions in search of a problem. But then Rauch joins that search. Like a customer in a shoe store, he tries on several different rationales for why Bush's plan might be defensible before settling on the idea that there's something morally commendable about people taking personal responsibility for their retirement, without the help of each other through their government. For Rauch, apparently, cooperation is lower on the hierarchy of morals than atomistic individualism.

Rauch also writes:

Why, then, shouldn't people save for their own retirement, instead of relying on welfare from the government — which is what Social Security, as currently constituted, really is?

No, it really isn't. Insurance =/= "welfare." Prudence =/= dependence.

Franklin D. Roosevelt was adamant, in creating Social Security, that the system was not welfare. To avoid that perception, or that accusation, he insisted that the flat-rate payroll taxes that fund the program be capped.

Most Americans don't realize that there's a cap on payroll taxes because most Americans don't make more than $87,900 a year.
Those who do, however, get a nice little tax break on their 87,901st dollar, and on every penny they earn beyond that. Take for example Carlos Beltran, who will receive $10 million in salary this year from the New York Mets. He will pay payroll taxes on the first $87,900 of that, but not on the remaining $9,912,100.

If this cap were eliminated, the system would take in a lot more revenue from people like Beltran. The centerfielder would also pile up a great deal more in future benefits, which are based on the wages he pays the payroll taxes on. Beltran, of course, doesn't need to worry about increasing the size of his Social Security benefits in the future — the guy just signed a seven-year, $119 million contract. That's part of why, if Social Security is to remain essentially a social insurance program, it makes sense to cap the payroll tax.

Yet here is Jonathan Rauch, joining President Bush in pretending that Social Security is actually a form of "welfare."

Well, if you can't beat 'em, join 'em. You want to pretend it's welfare? Fine, let's pretend it's welfare. That means eliminating the cap on payroll taxes. And while we're at it, since this is a "welfare" program we're talking about now, let's keep in place the limit on new benefits for salary above that cap.

This would be a fundamental change — from social insurance to social welfare. And it would likely create a boom in creative new forms of non-wage (and thus nontaxed) income. But the resulting infusion of revenue would ensure the complete solvency of the program until long after the last-living baby boom widow was buried.