Doesn’t Social Security Increase Inequality?

Matthew Yglesias questions whether or not there is a natural process of increasing inequality in a post-industrial society, and then concludes on the point that if we are overall richer in a post-industrial society, but less equal, we could in principle redistribute wealth and make everyone overall better off than they were in an industrial society.  All well and good so far.  Then he says,

Our process has done a little of what we should be doing (Obamacare, for example) but also a fair amount of the reverse—as seen in the relentless drive for Social Security cuts.

Okay, but we probably all agree that Social Security is a regressive, inequality-increasing social program, right?  I mean, I haven’t done any research on the subject, but it’s hard to see how it could be anything but.  The facts on the ground are:

  1. The elderly are, on average, wealthier than the young.  And Social Security is the young paying the elderly.
  2. Social Security is not means-tested.
  3. Social Security is paid for via a payroll tax, which is a regressive tax type (since it doesn’t apply to capital gains, and the most wealthy people have a much higher percentage of their income from capital gains rather than salary or wage).

Ergo, Social Security is regressive and inequality-increasing, right?

I understand the political logic that progressives use to justify this regressive system (that is, basically: it serves a need for the genuinely poor elderly, and making it universal makes it politically untouchable).  But if you’re spending a post complaining about widening inequality, surely you can’t conclude that what we need is more Social Security to shrink the gap.

btw, while it’s much less clear cut, I wouldn’t want to authoritatively state that Obamacare is on the whole inequality-decreasing either.  I mean, it might be.  But I can think of reasons why it might not be, and I don’t know of any strong evidence that it decreases inequality.


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