Social Security: it’s simple math

Great post from Kevin Drum that should be required reading for every journalist who ever uses the words “Social Security.”

I just don’t get it. Why do smart people keep saying stuff like this? [in reference to typical social security is doomed naysaying].  Medicare is a problem. But unless you believe that the United States is literally going to collapse in the near future, Social Security isn’t. Period.

The weird thing about this is that Social Security isn’t even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic. The chart on the right tells you everything you need to know: Right now, Social Security costs about 4.5% of GDP. That’s going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.

That’s it. That’s the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so. And if we do something in the middle, then taxes will go up, say, 1% of GDP and benefits will drop to about 92% of their promised level. But one way or another, at some level between 75% and 100% of what we’ve promised, Social Security benefits will always be there.

This is not a Ponzi scheme. It’s not unsustainable. The percentage of old people in America isn’t projected to grow forever. Lifespans will not increase to infinity.1 Taxes go in, benefits go out. It’s simple.

Yep.  One of my great regrets as a college faculty member is that I bought into all this media-produced hysteria before I knew better and passed on these misunderstandings to my students the first couple years I was teaching.  I’d like to think I’ve made up for it by being a vigorous advocate for more correct understandings ever since.  Roger Lowenstein’s now 6-year old article on Social Security still sets the standard for explaining the real long-term situation.

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

One Response to Social Security: it’s simple math

  1. Pingback: Tweets that mention Social Security: it’s simple math « Fully Myelinated -- Topsy.com

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