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Letter to Rep. Flake on Social Security Comments

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Written by Dean Baker   
Wednesday, 11 May 2011 15:30

The Honorable Jeff Flake
240 Cannon Office Building
Washington, DC 20510

Dear Representative Flake,

On “Freedom Watch with Andrew Napolitano” last night, you said that in 1950 there were 16.5 workers for every retiree and that the country can’t provide entitlement programs like that. However, the tax rate at that time was 1.5 percent on employers and employees on income up to $3000 (roughly $24,000 in today’s dollars) and it was zero on the self-employed (Table VI.A1). Presently, the tax rate is 6.2 percent on both the employer and the employee and 12.4 percent on the self-employed on income up to $106,800. Because of this change in the tax rate, Social Security is fully solvent through 2037 and can pay close to 80 percent of benefits in subsequent years.

You also suggested that it would be better for those under 50 to keep the money that would have gone to Social Security and to put it into private savings. The reality is that the administrative costs of mandated private savings would be about 5percent annually according to President Bush’s Social Security commission. Under the current system, the administrative costs of Social Security are just 0.6 percent of annual expenditures (Table III.A6). In other words, switching to private savings would transfer tens of billions of dollars annually from taxpayers to the financial industry.

As a member of Congress, I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

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