Contributions or Taxes? Two Social Security Funding Paradigms

Source: Benjamin Veghte, National Academy of Social Insurance, April 15, 2010

April 15th is a day we contemplate our financial relationship to government. It thus provides a suitable occasion to reflect on the distinction between Social Security contributions and income taxes. In discussions of Social Security, many disagreements stem from the fact that we view its funding from within different paradigms, namely some of us see these payments as insurance contributions, others as just another form of income tax. On this year’s Tax Day, this post considers the historical origins of this conceptual distinction, arguments for each of the two paradigms, and their implications for strategies of fiscal reform.

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