Social Security

Kevin Drum has been working on this issue alot, and he's got a good post today explaining just what the relationship of payroll and income taxes to the "deficit" is:

SOCIAL SECURITY BONDS....In 2018 (approximately), payroll taxes will no longer be enough to cover Social Security payments. To make up the difference, treasury bonds from Social Security's trust fund will be sold back to the government, and in order to pay for those bonds income taxes will have to be raised.

Is this fiscal Armageddon? Hardly. As I say in Thursday's Christian Science Monitor, middle-class workers have been subsidizing high earners for over 20 years as part of the bargain crafted in the Greenspan/Reagan reforms of 1983:

For more than two decades, low- and middle-income Americans have kept their part of the bargain, paying more in payroll taxes than Social Security needs and helping to keep income taxes low. In return, beginning in 2018, high earners are expected to start paying a bit more in income taxes in order to help keep payroll taxes low.

The key point here is that payroll taxes are mostly paid by middle and low income workers — and they've been overpaying for years. Income taxes are mostly paid by the well off, and the extra money from payroll taxes has allowed them to underpay for years. In 2018 that reverses, so paying back those bonds isn't just a moral obligation between generations, it's also a moral obligation between the wealthy and the middle class.