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The Third Rail | |
By ScottBittle on February 8th, 2008
People in Washington who worry about Social Security’s long-term future often complain about mixed messages from the public. But when I talk to them I hear some mixed messages, too.
One message is that the Social Security problem really isn’t that complex. “It’s actuarial,” they’ll say. “It’s simple. Not like Medicare,” they’ll add, with a roll of the eyes.
And there’s truth in that. Compared to Medicare, Social Security is simple. The problem is driven by the increasing number of baby boomers who are going to retire, and it’s just a matter of how many people are paying in versus how many people are taking out. Medicare, by contrast, has the same demographic problem plus the problem of skyrocketing and unpredictable health care costs. The potential fixes for Social Security aren’t exactly pleasant, but they’re not that daunting, either. The simplest comparison I’ve heard is from the Social Security and Medicare trustees. If you were "king of the world" and wanted to bring Social Security into balance for the next 75 years, you could raise payroll taxes immediately 16 percent or cut benefits 13 percent. No fun, certainly. But to make Medicare stable for 75 years, you’d have to raise payroll taxes 122 percent or cut benefits by 51 percent. Which is very, very ugly.
The second thing people in Washington will tell you is that, even if it seems relatively simple, Social Security is the “third rail” of politics – touch it and you die. You can’t even talk about it, they’ll say.
And I’m not sure that’s true. Yes, President Bush’s plan for private accounts went nowhere. But private accounts aren’t the only option. Yes, politicians are regularly hammered by their opponents for even suggesting change. But while that may be effective campaign politics, that doesn’t automatically relate to how people talk about this issue in their daily lives.
And all the public opinion research conducted for Facing Up shows that citizens can deal with these budget questions. They need a certain amount of information and they need to have the options fairly presented. But once that is done, they can eight tradeoffs and consequences and reach solid conclusions about what should be done. They did this in focus groups we’ve conducted, and they’ve done this in the ChoiceDialogues we’ve organized. There can be a real discussion on this, if our leaders want to have it.
And I’d argue that sooner or later, our leaders have to have that discussion. Because there’s one thing that is true about the “third rail” argument. There’s no way that the American people are going to let anyone make fundamental changes in their retirement plans without their consent. You can get that consent, I’m convinced. But you’re going to have to talk to people honestly to get it. This post is my submission to the Facing Up blog carnival. 3 comments on this entry
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Changing Expectations
»A new report finds the main problem in getting the public to deal with our fiscal problems isn't opposition to tax increases or spending cuts -- it's their lack of trust in the government to spend their money wisely. |
Re: The Third Rail
I heard Mr. Bittle on Fresh Air this morning. What a relief to have somebody explain components of the federal budget in terms that a lay person can understand. Thank you for that!
I'm writing to ask about the figures you mention above regarding the stabilization of Social Security for another 75 years... Does the 16% increase indicate the current rate + 16 OR the current rate + (current rate x .16)?
In other words, if I currently pay 20% payroll taxes, would I need to pay 36% in the future or 23.2%?
I'd like to suggest that providing your listeners/readers with examples of how these mathematical figures look when applied to actual salaries gets us one step closer to genuine understanding of the issues and more civic engagement.
thanks again,
Paula
Percentages of percentages
The current combined FICA tax (Social Security payroll tax) is 12.4% split between employer and employee. The current payroll gap is 1.95% of payroll. To call that a 16% increase is just begging for the kind of confusion the first commenter expressed. Generally speaking commenters on Social Security who use this kind of math are not operating in good faith. I don't know enough about Mr. Bittle to make that accusation against him, I just point out that expressing these figures in second order rather than first order terms is not particularly enlightening. 122% sounds really, really scary but without some understanding of what that is a percentage of and where the projections came from that generate that new number adds more heat than light to the discussion.
See Coberly's contribution to the Carnival
Dale Coberly does exactly what you are asking for the typical worker. His number assumes that the employer/employee split would remain the same. Economists tell us that the actual incidence of the employer share actually comes from the employee, in effect as a deduction from what he would otherwise be paid. I have my doubts about this little application of the relation between real compensation and marginal productivity but no matter.
The current payroll gap for Social Security is 1.95%. Per the Trustees and under their economic assumptions an immediate increase in payroll tax of that amount would fully fund Social Security through the 75 year actuarial window. The median household income in this country is around $50,000 and all of that would normally be exposed to FICA. For that household the cost of a 100% fix would be $975/year or $18.75/week, if the employer picked up their half (not a sure thing) the total cost to totally fix Social Security with no changes in retirement age or benefit cuts for the median household could be less than $10 a week.
On the other hand if you are just starting out in life and have a near minimum wage job of $8 an hour that actually has paid vacation your share of the cost for an immediate fix would be $6.24/week or $3.12 if your employer paid half. In practical terms we are talking coffee and pizza money here.
This largely explains why Bush opened this discussion by saying that all options were on the table. Except a tax increase. Because the math simply does not match the rhetoric. People who say we couldn't, if necessary, tax our way out of supposed 'crisis' are just deluding either themselves or others. As are those who tell us 'We can't afford to wait, the cost of the fix will just get bigger'. Except that it didn't. In 1997 the cost of an immediate fix to 'crisis' was a 2.23% payroll tax increase. Otherwise the Trust Fund would go deplete in 2029. After eleven years of inactivity what was the cost of delay? Well less than nothing. The cost of the fix is now down to 1.95% and Trust Fund Depletion pushed back to 2041. There is a word for a problem that left neglected for more than a decade gets smaller in size and farther out in time, that word is not 'Crisis'.