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COMMENTS

ANTHONY PELLECHIO
The World Bank

I am writing to respond to a couple of repeatedly articulated comments at the Symposium.

At times we heard concern expressed about using Trust Fund reserves for spending on education or other public investment because the payroll tax is regressive. At other times, Social Security was described as a "good deal" because of the lifetime returns following from the proportional payroll tax and progressive benefit formula. As you know, the payroll tax is proportional up to the same earnings ceiling for computing benefits; if the payroll tax is regressive because of this earnings ceiling (above which earnings do not count for benefits as well as not counting for tax purposes), then the benefits formula is just as progresssive as the payroll tax is regressive.

Holding both the view that the payroll tax is regressive and that Social Security is a good deal is possible. These views together imply Social Security should offer an even better redistributive deal either by making the payroll tax or benefit formula or both more progressive. I would not be surprised if some people favor raising the earnings ceiling for the payroll tax but not the benefit formula, or scraping the payroll tax altogether and collecting Social Security revenue through the income tax. However, these changes would break the earned right principle of Social Security. Holding these views is fine as long as the implications are made clear as well. In cynical moments I think these two views are purposely presented at different times as a "scrambling" strategy for achieving the hidden objective of making Social Security more redistributive.