Thursday, February 19, 2009

What Social Security Crisis?

The following from Angry Bear -- because his guest says it better than I can.

Thursday, February 19, 2009
No crisis in sight

guest post by Coberly

A few years ago the Social Security Trustees began publishing a warning that went something like this: "After the year 2040 Social Security will only be able to meet 75% of promised benefits."

You may have gotten this message in the mail, or heard it while waiting to talk to Social Security on the telephone. But look at what it really says.

If Social Security can meet 3/4 of promised benefits with the existing tax, it could meet ALL promised benefits with a 33% tax raise. 3/4 times 4/3 equals One.

But the current tax is 6.2% of payroll. 33% of 6.2 is 2.1. So a 2% raise in the payroll tax would enable Social Security to meet all promised benefits.

Current average income is 700 dollars per week. 2% of 700 is 14 dollars. (For a low wage worker, the tax increase would be about 7 dollars per week.)

Projected average income in 2040 is 1000 dollars per week. 2% of 1000 is 20 dollars per week.

So Social Security can be "saved" by a 20 dollar increase in tax on an income that has increased by 300 dollars by the time the raise is needed. The reason the raise will be needed is to pay for the six extra years of life expectancy those future tax payers will have compared to us. The 20 dollar raise will preserve their benefits at current replacement value and allow them to retire at the normal age.

This is not a crisis.

I can say a great deal more about this. But this is enough for lesson one. Except to point out that Peter Peterson has convinced everyone, including some bi-partisan experts and possibly Barack Obama that 20 dollars times 2 (boss's share) times 52 weeks times 200 million taxpayers times 75 years is an "Unfunded Deficit of 31 Trillion Dollars!!" Which of course it is. He hopes you will not do the arithmetic and realize it is still only 20 dollars a week. Or realize that it is "unfunded" because we don't need to pay for it in advance.
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guest post by Coberly.

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