Tax Day Thoughts on Social Security

by Dollars and Sense

On Tax Day, we recommend to you a recently-posted article from our March/April issue, Go Ahead and Lift the Cap, in which economist and D&S collective member John Miller responds to a Clinton campaign flyer claim about Obama's proposal to raise the cap on income subject to Social Security taxes. To her credit, Hillary Clinton has publicly questioned the very idea of a "Social Security crisis" (as we have repeatedly in the pages of D&S, e.g. here and here). But her criticism of Obama's proposed reform is off target.

We also recommend this item, from Craig Jennings of OMB Watch:

Social Security: Its Long-Term Outlook Is Still Just Peachy

In fact, it's getting better. The Social Security Trustees Report for 2008 was released by the Social Security Administration today (it's quite the page-turner). Here are the key facts:

* Social Security's "insolvency" date remains the same as last year - 2041. This is the year in which the program's payments will exceed its income.
* The year in which program's payments will exceed tax revenues remains unchanged - 2017. This is the year that the trust fund will first be used to make payments to beneficiaries
* The actuarial deficit over a 75-year horizon is 1.70 percent of taxable payroll - a 0.26 percentage point reduction from last year. This number represents the combination of increased revenues and decreased benefits as expressed by percent of taxable payroll that is required to avoid insolvency

Also included in the report is the cost of the program over the next 75 years. And as much as certain pundits (I'm looking at you Bob Samuelson!) would like you to believe that Social Security is a large bit of the long term fiscal challenge, the report underscores how small a portion of the Entitlement CrisisTM Social Security is.

Expressed in relation to the projected gross domestic product (GDP), OASDI cost is estimated to rise from the current level of 4.3 percent of GDP, to 6.0 percent in 2030, and then to decline to 5.8 percent in 2082.

At its peak in 2030, Social Security will cost 1.7 percent of GDP more than it does today - keep in mind, too, that in 2030, Social Security is still solvent. That's not pocket change, but it's not the soul-crushing, economy-killing, puppy-eating monster that Entitlement CrisisTM Henny Pennys make it out to be. To put into perspective, if President Bush's FY 2008 war supplemental request is fulfilled, that $196 billion would represent about 1.4 percent of current GDP. And while the war is an expensive project, it's hardly bringing the economy to a halt.

The real challenge in the long-term fiscal challenge is still health care costs. Data from GAO's Long Term Fiscal Outlook indicate that Social Security's modest cost increase (4.2 percent of GDP today to 5.3 percent in 2082) is a pittance compared to the growth in Medicare and Medicaid expenditures, which increase from 3.9 percent of GDP today to 13.9 percent in 2082.

Labels: hillary clinton, John Miller, Obama, OMB Watch, Social Security, taxes

 

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4/15/2008 12:21:00 PM