Social Security’s political success has long been thought to be based on the way it combines redistribution and forced savings. The leading Democratic proposal to change Social Security therefore does the same thing. It would raise benefit levels for all retirees, and pay for it by raising taxes for all workers — but especially for higher-income workers.
You can see the political appeal of structuring an expansion of the program this way. Everyone gets bigger checks: Who doesn’t like getting bigger checks? Who doesn’t like seeing seniors get bigger checks? The program continues to create the appearance that it is just giving people their money back, which seems only fair. And if people actually did the cost-benefit calculation, a lot of people would see they would come out well ahead, a lot would come out slightly ahead, and only a few would be net losers — and the net losers are people with high lifetime incomes.
The political appeal is an economic drawback. A straight-up transfer from the rich to the poor would require much less federal spending and federal taxation. It would also do less to reduce private savings. My AEI colleague Andrew Biggs has commissioned some new polling that suggests that the proposed expansion would be less popular to the extent people focused on the shell-game aspect of it. Would you prefer to pay higher taxes now to get higher benefits later, or to save the extra money for your retirement in an account you own? The Rand Corporation found that 74 percent of people, and a strong majority of every demographic group tested, preferred private saving.