Projected Social Security Shortfall Dwarfed by Wage Growth

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Sunday, 12 August 2012 09:19

That could have been the headline of a Boston Globe article on the size of the projected Social Security shortfall if the paper had not decided to use its news section to scare readers about the state of Social Security. In keeping with this effort, the headline of a recent article read:

"Social Security surplus dwarfed by future deficits."

The article then gave a series of numbers which could only be intended to scare readers since it is extremely unlikely that even 0.1 percent of the Globe's readers have any idea what they mean.

"The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today."

To make sense of these numbers it would be necessary to know how large the economy is projected to be in 2033, 2045, and 2086. GDP in these years is projected to be approximately $41 trillion, $72 trillion, and $440 trillion. Providing these GDP numbers would have allowed readers to put these projected deficit figures in some context.

If the Globe was interested in conveying information instead of pushing its agenda for cutting benefits it might have told readers that the tax increase needed to keep the system fully funded over its 75-year planning horizon is just over 5 percent of projected wage growth for the next 30 years. (This is using the Social Security trustees projections. It would be less than 4 percent of projected wage growth using the projections from the Congressional Budget Office.)

While many readers would point out that most workers have not been seeing wage growth in recent decades, that complaint would highlight the absurdity of the Globe's piece. The upward redistribution of income over the last three decades has done far more to hurt the living standards of ordinary workers than any possible tax increases associated with Social Security.

In fact, it is one of the main reasons that the system is projected to face a shortfall. If the income distribution had remained constant at its 1983 level (the last time the program was adjusted), the projected shortfall would be roughly half of its current size, since much more income would be subject to the Social Security tax.

Going forward, the impact of the distribution of future productivity gains on workers' standard of living will swamp the impact of any possible tax increases used to fund the Social Security program. Obviously the Globe has decided to use its news section to divert the public's attention from this obvious point. Instead it is pushing for cuts in Social Security benefits.