Andrew Kohut Doesn't Know How to Read His Own Data

That arguably should have been the headline of a Post segment discussing the release of new polling data from the Pew Research Center, which Kohut heads. The Center's poll asked people a series of questions about the budget, taxes, and various programs. Most people answered that they viewed the deficit as a major concern. They were also strongly supportive of all major areas of federal spending with the exception of the military. In the case of military spending, there were almost equal numbers of people favoring cuts as increases. In the case of Medicare and Social Security, those favoring increases outnumbered those supporting cuts by more than 3 to 1.

In the case of Social Security, an overwhelming majority of respondents said that they supported raising the cap on taxable wages (currently $110,000). In addition, an overwhelming majority also said that they would rather see the tax rate increased than face a cut in benefits.

"But ultimately, despite listing the deficit as a priority, most Americans — about 60 percent in a 2011 poll — would prefer to maintain benefits than take steps to reduce federal spending. As Kohut explains, this puts legislators in a real bind: 'They are dealing with a public that is demanding solution to a problem which it has declared to be a major priority, but at the same time Americans are resistant, or divided at best, on the sacrifices that would be required to achieve a solution.'"

Contrary to what Kohut asserted, legislators are not in a bind if they want to follow public opinion. They can easily deal with the problems facing Social Security by raising the cap on taxable wages and phasing in an increase in tax rates over many decades in the future. If ordinary workers again share in the economy's productivity growth, as the Social Security trustees projections assume, these tax increases would be a small fraction of future wage gains.

re social security
written by Jeff, June 16, 2012 10:15

Concerning raising the social security cap, is there anywhere that lists a basic formula for how much you receive back from social security relative to what your income level was. For instance, if you raised the social security cap to say $200,000, then yes you would be bringing in more revenue, but you'd also be paying out more money to people on the back-end. I know the taxes are progressive, but just wondering if anyone has an idea of how much of the new revenue would actually be surplus.

...
written by liberal, June 16, 2012 10:16

They can easily deal with the problems facing Social Security by raising the cap on taxable wages...

I don't understand the fairness of raising the cap on wages. If you're going to increase the progressivity of the tax, which makes SS more like welfare and less like retirement insurance, why not tax both wages and unearned income?

No Cap on Wages for SS Would Be Very Keynesian
written by Paul, June 16, 2012 11:10

Eliminating the SS tax wage cap would redistribute wealth from the rich to the middle class which, as Keynes pointed out, would increase consumption because the middle class consumes most of its income while the rich invest most of theirs. Since consumption drives growth, obviously Keynes would agree.

CBO: Social Security Policy Options
written by Bruce Webb, June 16, 2012 12:56

Jeff you can Google this 2010 CBO paper scoring 30 different Social Security policy options including a couple versions of cap increases, some that allow corresponding benefit increases, others not. The one that lifts the cap on all covered income (wages and equivalent) while letting benefits go up per the current formula scores as closing 5/6th of the projected gap.

You can find details about that formula at ssa.gov, keyword 'AIME' or 'bend point'. In short earners above the second 'bend point' of income somewhat subsidize benefits for those under that point and even more under the first. Not in a hugely progressive way but a cap increase with some small changes in overall FICA rates fairly easily backfills the gap. Which gap mostly has incidence in the second 25 year sub period (2037-2062) anyway and as Dean alludes is based on fairly pessimistic assumptions around Real Wage growth going forward.

...
written by JSeydl, June 16, 2012 2:56

Eliminating the SS tax wage cap would redistribute wealth from the rich to the middle class which, as Keynes pointed out, would increase consumption because the middle class consumes most of its income while the rich invest most of theirs. Since consumption drives growth, obviously Keynes would agree.

Thank you, Paul. It doesn't take a genius to see this. Here are two simple regressions making the same point: One that regresses changes in real personal consumption expenditures on changes in real median household income, and another that regresses changes in real personal consumption expenditures on changes in real average income earned by those in the top 1 percent:

http://img831.imageshack.us/img831/8954/earingsandconsumerspend.png

As these charts show, changes in median household income have a much stronger association with changes in consumer spending than do changes in earnings at the top 1 percent of the income distribution. So any policy that aims to boost consumer spending should concentrate on boosting median household income, not on boosting income for those in the top 1 percent.

raising the cap
written by coberly, June 16, 2012 4:23

raising the cap would no doubt redistribute incomes more "fairly." but it would also kill social security which was designed explicitly not to be welfare.

raising the payroll tax one tenth of one percent per year would pay for the 75 year actuarial gap in 29 years. that is the workers who will get the benefits will pay for them themselves, as they always have. that is the beauty of Social Security. it is the best anti poverty program ever invented, and it does it by simply protecting the workers savings from inflation and market losses, and allowing the workers to insure each other against various forms of personal bad luck.

that one tenth of one percent would be eighty cents per week each year. while wages are going up eight dollars per week each year.

this confuses Cohut because they told him that Social Security would cause huge deficits. And no one, not Cohut, not Obama, ever bothered to check the arithmetic.

300 million people stampeded by a Lie.

JEFF benefit formula
written by coberly, June 16, 2012 4:31

earners at the very highest levels get back a monthly benefit about twice what they paid per month in FICA... all adjusted for inflation plus real growth in the economy.

since the cap is not 200k, we really don't know what the "return" would be. in any case most people at that level would think they could earn a lot more on their own, and they would not see the "insurance" value of SS as worth what they were paying.

people below the cap currently can, if they look at it honestly, understand that between the fairly good "return on investment" plus the insurance value, they are getting a better deal than they can in any private market.

that's why it makes no sense to raise the cap when the workers can pay for their own benefits by raising their own tax about one percent, or two percent if you count the employers share at a rate of one tenth of one percent per year.

Broaden and raise the tax
written by Bill Turner, June 18, 2012 7:28

Since GDP is made up of capital + labor + raw materials, and the emphasis of SS is social, it amazes me that the system penalizes wage earners severely and is so regressive in nature. Being a social program, removing the cap and extending the tax to most other forms of income seems logical. It would likely also reduce the overall tax rate, giving the working class more money to spend and possibly corporations a bit more profit.

Bill Turner
written by coberly, June 19, 2012 3:38

And if everything you ate tasted exactly the same it would no doubt be fairer to turnip farmers.

Social Security is successful exactly because it is NOT welfare. Try to think of it as an insurance policy and it will make more sense to you.

If you want to redistribute incomes, take it up with the electorate. But if you want to insure workers so they can retire at a reasonable age with at least "enough" don't be in too big a hurry to save the world by destroying Social Security.

Andrew Kohut Doesn't Know How to Read His Own Data

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