Social Security And Medicare Doing More To Promote Income Inequality Than The Bush Tax Cuts

We all know the talking points by heart. They’ve been chanted by Democrats and liberal activists for years now, and these days the 99 percenters in the “occupy” movement helpfully graffiti the slogans on walls for us. “Tax cuts for the rich.” “The rich aren’t paying their fair share.” “Income inequality.” “The rich get richer and the poor get poorer.” Even Robin Hood and his “take from the rich and give to the poor” legacy has been put to work in these political games.

Now, conventional wisdom is that this income inequality is promoted by tax cuts. The rich, the so-called “one percent”, pay less in taxes and that raises the burden on everybody else. Except, according to data from the CBO, tax cuts have actually lessened income inequality whereas the biggest drivers of inequality are the gigantic social programs championed by the left.

upercommittee Democrats argue that income inequality has been increasing and can be at least partially reversed by higher tax rates on high earners. They refused to agree on any deal that didn’t include such tax increases.

Supercommittee Republicans offered a plan to eliminate tax preferences and reduce tax rates, as in the 1986 bipartisan tax reform. They argued that high tax rates would squelch economic growth.

They didn’t make the case that their proposals would also address income inequality. But House Budget Committee Chairman Paul Ryan, in a 17-page paper based largely on a Congressional Budget Office analysis of income trends between 1979 and 2007, has done so.

Ryan, a Republican from Wisconsin, makes the point that the government redistributes income not only through taxes but also through transfer payments, including Social Security, Medicare, food stamps, and unemployment benefits. The CBO study helpfully measures income, adjusted for inflation, after taxes and after such transfer payments.

Many may find the results of the CBO study surprising. It turns out, Ryan reports, that federal income taxes (including the refundable Earned Income Tax Credit) actually decreased income inequality slightly between 1979 and 2007, while the federal payroll taxes that supposedly fund Social Security and Medicare slightly increased income inequality. That’s despite the fact that income tax rates are lower than in 1979 and payroll taxes higher.

Perhaps even more surprising, federal transfer payments have done much more to increase income inequality than federal taxes. That’s because, in Ryan’s words, “the distribution of government transfers has moved away from households in the lower part of the income scale. For instance, in 1979, households in the lowest income quintile received 54 percent of all transfer payments. In 2007, those households received just 36 percent of transfers.”

In effect, Social Security and Medicare have been transferring money from low-earning young people (who don’t pay income taxes but are hit by the payroll tax) to increasingly affluent old people.

The Democrats, perhaps following the polls and focus groups, have been protecting these entitlement programs, which have done more to increase income inequality than the Reagan and Bush tax cuts put together.

It should shock us, at this point, that these programs are accomplishing the exact opposite of what their designers intended. After all, what has government health care reform done but make health care and health insurance more expensive and harder to get?

Social Security and Medicare represent not just unpayable levels of spending obligations, but also massive wealth transfers from younger Americans to older Americans, most of whom don’t really need it.

At the very least, this is an argument for means testing these program and limiting them only those truly in need of a safety net. In a perfect world, we’d be rid of these programs. We’d be better off without them.

Rob Port is the editor of In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters.

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  • borborygmi

    Isn’t means testing just another attack on the rich.  If they can’t get their medicare and social security won’t they try to earn less to keep under the cutoff.

    • JustRuss

       In your worldview, if they are making less doesn’t that mean someone else can make more? Why do you have a problem with that?  Shouldn’t people only work the minimum required amount?

    • sbark

      The article is 100% correct, as recently the 1970’s the maximum amount of income taxed on SS was 12,000.00 at a 5% rate:   so the max a present day retirie paid in yearly early during that decade was approx 600.00………..

      They get 200% of that in one month at present

      SS and Medicare are generational theft extrodinaire…..the young person working at McDonalds cannot escape SS tax on his 5.50 per hour wages….it hits him the hardest……

      …..and on top of that the employer has to pay the other half which is much like another minimum wage level hike…………it discourages employment to boot.

      using average figures for a couple retired in 1960,  total paid in Social Security and Medicare taxes paid were $18,000 (in constant, 2011 dollars). Total benefits received were $248,000 – a return of 1,277%.
      The “returns” would have long since turned negative, except for the fact that Social Security taxes have been increased 40 times since the program began. That was necessary because today only three workers must support each retiree (down from 16-to-1 in 1950). By 2030, the numbers will fall to two workers supporting each retiree

      The system will collapse as every ponzi scheme must

  • Dakotacyr

    These proposals won’t eliminate income inequality. Much of the increased inequality comes from the huge increases for those in the top 1 percent of earners.”

    Apparently you missed this part of the article.

    • ellinas1

      He did not miss it.
      He omitted it because it is inconvenient for his cause.

    • Rob

      But you’re misunderstanding that statement.

      Income levels have grown for everybody:

      Since 1970, the income level for the “bottom 99%” has grown 60%.

      What you’re missing is that the size of the “pie,” as a whole, has gotten larger.

      I mean, to believe what you believe, Americans would have to be as poor or poorer than they were 30 or 40 years ago.  Do we really beleive that, with even the lowest-income Americans enjoying things like smart phones, broadband internet and satellite television?

      C’mon.  Let’s use our brains.

      • Jamermorrow

        I would argue that the standard of living is falling. Women now have to work. We don’t have as many kids. We work more hours and have less savings. Adjusted for inflation using the phony CPI wages are down since 1970. Using Gold as an inflation indicator wages are down big time. Many Americans cannot afford the things you mentioned but are paid for by credit cards that will never be paid back. Americans went into debt to buy these items and we will pay for it in the future.

      • The Whistler

        Actually that’s not quite true.  For those that refuse to work hard and improve themselves the wage growth is smaller.  For those like Ellinas who have refused to do that and even bathe it’s been even harder for them to get ahead. 

  • ellinas1

    From the article Mr. Port got his info:
    “Much of the increased inequality comes from the huge increases for those in the top 1 percent of earners.”

    • Jamermorrow

      Inflation always make the rich richer and the poor poorer. Inflation also wipes out the middle class. Everywhere it is tried the same thing happens.

    • Jfisher17

      Why should income be “equal”, anyway? Is intelligence equal? Or ability or work ethic? Typical lib tactic to start with a false premise- that income should somehow be equal.  

      • 2hotel9

        Income should be equal. If the same amount of work is being done in the same amount of time. That is not what leftards are screeching, though. They want equal income no matter how unequal the amount of work performed, product produced, etc etc. Their end goal is to drag everyone down to the lowest level, and force them all to remain there. Except for themselves, of course! They “deserve” top pay no matter what.

      • ellinas1

        Pray tell and show where I ever said that income should be equal.
        Typical repub/con tactic accusing a liberal of believing in income equality.

        • 2hotel9

          You say it all the time, ec*nt. That is the socialist sh*t that spews from you constantly, as it does from all welfare whores.

          • ellinas1

            Har, har!
            You so funny! You make me laugh with every post you make.
            Heh,heh, heh! Hah, hah, hah!.

          • 2hotel9

            I give you an order and you squat right down and sh*t. Too f*cking funny.

          • ellinas1


          • 2hotel9

            Yes, it is funny. I command and you obey. Now, do it again. I order you to.

          • ellinas1

            Heh,heh, heh!  Hah, hah, hah!
            You so funny! You make me laugh with every post you make.

          • 2hotel9

            Yep, I order you to sh*t and you squat and squeeze one out, like
            clockwork, you can’t stop yourself from obeying.Now, do it again. I
            order you to.

          • ellinas1

            Har, har.

          • 2hotel9

            And you keep sh*tting when I order you to. Do it again. I order you to.

      • EGBAR

        Income will never be equal.  But if high income is contingent upon intelligence, ability, or work ethic, George W Bush would be an example of a reverse ‘entitlement program.”

  • sbark

    The truth is that when the income gap grows, so does the economy as a whole and opportunity for the poor; and when it shrinks, it does so because the rich are getting poorer and that helps nobody.

    To repeat………this “fair” the Left is in quest of,  it falls right into the very radical Left plans thru history….its essentially the radical left using usefull idiots to get what they really want.

    Fair isnt possible history shows us…….The Left either gives us in search of “fair” a Hitler, a Stalin, a Mao, a Che and Castro……….or they give us Argentinian, Greece or Zimbaubwae type economic failure.

    Take a look at Michigan, NJ, Detroit, pre Katrina New Orleans, NY, Calif——all are the results of the dem’cat search for “fair……

    ……..The Left needs to realize that Envy, and the coveting of other peoples property is a bigger social Ill than greed

  • mickey_moussaoui

    We have ( or had anyway ) a market based economy. The sad fact for many “folks” as Obummer likes to call them is that they no longer have much market value. Unfortunate for most of us is that the market is now skewed so far left that we all have reduced value. Granted there are some people who will be better off financially. That’s life, get over it. The self professed “victims” of the 1% are the antithesis of Liberal ( and Obama ) politics. The “Share the Wealth” mantra was used during the 1930’s during the great depression. It is the natural lexicon of the Socialist and Democrat by choice. We warned everyone that Obama was a reincarnated demagogue of past socialist failure and here we go again. He wanted a war against business and industry and he got it. We are stuck with this error for now but do not cave in. We can throw this ass out before all is lost.
    The philosopher, essayist poet and novelist, George Santayana said it best: “Those who cannot remember the past are condemned to repeat it.”
    A popular message when Obama won the election was “we are so screwed”. 
    Simple and profound in so many ways.

  • SigFan

    As long as you are not harming others in the quest to enrich yourself it isn’t greed at all – it’s ambition and drive.  What is “greedy” is coveting the wealth of others that you have not personally earned or had any part in the accumulation of.  That is simply envy and covetousness.  There will always be those that through their own ingenuity and drive earn more than others, and there will always be a segment of the population that lack the skills, ambition and drive to do any better than average.  That’s simply life.

  • Kevin Flanagan

    Where did this notion that incomes should be equal come from? Does everyone make an equal effort; do they take equal risks? Only numbers can be equal, people can never be.

    • sbark

      I think the dem’cats see a life where if everyone is living hand to mouth, barely paycheck to paycheck……then really there is no “poor”,  they have redeifined poor out of the dictionary

      …….then things are fair………Liberalism:  equal sharing of misery for all…..

      • The Whistler

        Imagine no possessions
        I wonder if you can
        No need for greed or hunger
        A brotherhood of man
        Imagine all the people sharing all the world

  • 2hotel9

    “It should shock us, at this point, that these programs are accomplishing the exact opposite of what their designers intended.”

    Quinn’s 1st Law, liberalism/liberals always produce the exact opposite of the stated intent. And here it is illustrated in spades.

  • yy4u2

    I’m not sold on the “limiting to only those that truly need a safety net.”  If you are forced to pay into it, you should get paid back based off the fairy tale story they sold decades ago.  Who picks the winners and losers?  If a person feels they don’t need it, then they could opt out of the benefits.  The Bible doesn’t even sell the utopia that life is fair or easy.  People need to prepare for a lot of things in life from work to family to hobbies.  We will not succeed at everything.  How is it right morally, ethically, etc. if someone (the govt) sells a product (SS, Medicare, etc) that takes your money and then reneges on the promise because some actuary table says you don’t need it? 

    • 2hotel9

      Exactly, all who pay in should get their money back. All who never paid should get nothing from those who did.

    • The Whistler

      I’ve been paying into the system for over twenty years now.  I’m willing to NOT get any benefits and even pay continue to pay under current tax and income levels until I retire. But in exchange I demand that my kids be exempted from the Ponzi scheme as they enter the workforce. 

      Someone’s going to get screwed, I just don’t want it to be my kids. 

      • SigFan

        Like you I would be fine with continuing to pay at the current rate for the rest of my career and NOT get any return.  Being that I don’t have kids though my demand would be that my privately funded retirement accounts be made tax-free as opposed to tax deferred.  I hope your kids (and everyone else’s) don’t end up on the short end of the stick on this one, but IMO it’s already too late. 

      • yy4u2

        Must be about the same age.  Regardless, I’m also willing to not get any benefits but I want to quit paying now or drastically reduce what I’m paying in now through the day I quit working.  One day it will come to an end as there will be no money to pay out and none to borrow.  IMO, this needs to be nipped in the bud sooner rather than later.  Congress will go along with you not getting any benefits as it continues to strip us, your kids, my child, their children and hosts of others to prop up their vote buying machine.  Give us an option to opt out totally and see where the cards fall.  This is a Democrat family heirloom.  Let them continue to fund it with their personal generosity with Biden leading the call. 

      • Kevin Flanagan

        Ponzi schemes never end well. SS and Medicare will fare no different despite whatever some lying politician or government bureaucrat says. 

  • 2hotel9

    Wrong. Allowing the enemies of America and the human race to continue to steal from you is NOT the solution. That is the problem. Allowing the enemy to continue to steal simply allows them to continue to steal. Return the money stolen to those it is being stolen from, and execute all those who have been stealing the money from real human beings. Slow hanging or drowning, which ever is the slowest, most excruciatingly painful form of execution.

  • port

    I believe that our country has screwed us in many different ways more then what the common eye can see but at the same time we as the people have gotten lazy and instead of doing our research and really applying our …