I’ve made a New Year resolution to spend more time reading comments on blogs, particularly the economic wonk type of blogs. Here’s a couple of examples of maybe getting better thought or at least more clarity of thought from commenters (is it commenters or commentators?).
Krugman’s point was that since payroll taxes fund things like Social Security and Medicare a decline in payrolls relative to the overall growth of the economy is going to leave those programs underfunded. Naturally, Krugman proposes taxes on capital as a possible solution to the problem. Tyler Cowen riffs on Krugman’s blog post but doesn’t offer any dissent. Fortunately, one of his commenters, Vivian Darkbloom chirped in with a pretty withering rebuttal to Krugman.
“I don’t see that Krugman made any mistake about social security solvency. He’s just saying that if the wage share falls, the system is insolvent if we maintain SS benefits at his preferred level.”(She is referring to a previous comment)
This reminds me of the “lump of labor” fallacy. Perhaps we could call it the lump of GDP fallacy.
The fallacy here is that if non-wage income constitutes a greater percentage of overall GDP, total wage income must be reduced below what it would otherwise have been. It is a standard progressive meme that as wealthy persons earn more this must, necessarily, come at the expense of everyone else. This strikes me as a similar argument (and fallacy). Social Security and Medicare benefits are not indexed to GDP. While it is possible technological advances come at the expense of labor, it is also quite possible that wages can continue to grow fast enough to keep Social Security and Medicare “solvent” (under the current benefit formulae) even if “capital” represents a greater percentage of overall GDP. Stated differently, capital need not “substitute for labor”, but compliment it.
And, as noted somewhere above, the new ObamaCare 3.8 percent Medicare surcharge on investment income above generally $250K will apply after Jan 1, 2013. While not all those funds go to Medicare, it does strike me that 3.8 percent tax on this income from capital is greater than the 2.9 percent tax that would apply if that income were from wages (on those earning less than $250K). As far as gross revenues are concerned, therefore, a shift towards income from capital by high-earners should bring in more, not less, revenue.
Krugman’s plan (with Krugman, there always is a plan that usually involves tax increases) must be that he wants to subject the same investment income to social security tax as well as Medicare tax (without any corresponding increase in benefits).
Nice rejoinder. Just for the fun of it here is another view of COE (Compensation of Employees) which tends to make Krugman’s chart a bit less alarming.
Now this chart appeared all over the place today. I picked it up first on Marginal Revolution as it bounced around. It inspired Matt Yglesias to write an article titled “The Case For Death Panels, In One Chart.”
In this case we have someone by the pseudonym of Plugh who commented:
Originally posted by “Plugh” at Ygelsias’s site:
“This is a bogus chart. It takes a lot of searching to find the original data. The links reference Forbes, which references the Pittsburgh Post-Gazette, which references Prof. Paul Fischbeck. However, I could not find his publication(it may not have been published). The Post-Gazette also states that Prof. Fischbeck got his data from a 2005 study by Boston University economist Laurence Kotlikoff, though they misspelled his name.
The original charts in the Kotlikoff study are for 10 countries, for different years from each country, and, most importantly, THE DATA IS ONLY FOR GOVERNMENT SPENDING. From the Kotlikoff study: “…for age groups under 65, the average values of government health expenditures used to form the U.S. profile are averages over the entire population at a particular age, including those not eligible for Medicaid and, therefore, receiving no benefits.”
(see: http://www.nber.org/papers/w11833). Accordingly, it does not include the lion’s share of healthcare spending for those under 65, skewing the chart.
The Kotlikoff paper did not chart them together because the data was from different years, currencies, etc. It also mentions that of the 10 countries studied, the US was at one extreme, Austria, Germany, Spain, and Sweden at the other, and Japan, Norway, the UK, Canada, and Australia are in between. This chart conveniently removes the in between countries to make the US appear more extreme. “
So you might want to join me and resolve to read beyond end of the post. There’s a lot of wisdom that follows people like me spouting off.