We Will Make an Economist of Him Yet

The sharp-eyed Matthew Yglesias:

Last year the Trustees said that "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 6.3 percent in 2030, and to 6.6 percent in 2078." This year things have gotten better, not worse. "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 6.1 percent in 2030, and to 6.4 percent in 2079."

So why is the administration saying that Social Security projections have gotten worse? He puts his finger on it:

Apparently, the Trustees have changed their mind about what proportion of the overall economy in the future will come in the form of tax[able] payroll.

Comments

[DaveK]

"Apparently, the Trustees have changed their mind about what proportion of the overall economy in the future will come in the form of tax[able] payroll."

This is something that has been bugging me. If the economy really does follow the long term SSA assumptions, what will the economy look like in 75 years? Clearly, anything that grows slower than the overall economy vanishes over the long term. Is this what the SSA is in effect predicting for taxable payroll?

[alan]

Because enquiring minds want to know.

What exactly is Prof DeLong's relationship with the estimable Matt Yglesias? Is he an ex-student? Relative? Or is Prof a fan or vice-versa?

And how did such a young feller (I think Matt is 23, no?) get such stature in the political blogosphere?

[spencer]

No relationship between matt & Delong.

Matt gets such stature because he works extreme hard at it and does a very good job. It is extremely rare for him to make a mistake,and his errors have declined as he gained experienced.

[luminous]

"Apparently, the Trustees have changed their mind about what proportion of the overall economy in the future will come in the form of tax[able] payroll."

Do they then have the argument that private accounts will capture that part of the economy in a way that payroll taxes don't? What would be a better way to shift the revenue model on track with this shift away from taxable payroll?

[David Lloyd-Jones]

Everybody please keep your eye on the ball: the Social Security payroll tax is regressive. It should be uncapped, and assessed on a sliding scale, so that the first $10,000 in income is taxed at a lower rate than the top million or so. This is really elementary; what are people thinking about when they go off on all the trivial stuff?

[Tom]

It would be consistent with the pattern in recent years for non-wage compensation, wage compensation for the highest earners (above the payroll tax cap), and returns to capital (corporate profits, dividends, interest payments) to all grow faster than the payroll tax base. But all of that has been known for a long time, so why would the forecast need to change in the past year?

And shouldn't this finding prompt us to look for policy changes that shift the SS tax base to something that more closely parallels the growth of the economy? e.g., Maybe we should broaden the base to include all compensation & lower the rate such that the change would be revenue neutral today - but since the tax base would then grow at a faster rate, the long-term balance of the program would be improved? [And by the way, most people would get a tax break, and a lot of tax-sheltering activity (e.g. various games involving employer-paid life insurance, stock options, etc.) would go away, and a lot of other good things.]

DaveK, you raise a good question, one implication of which is the following: Assuming the trustees forecast plays out, what would the size & distribution of payroll taxes look like compared with today? For example, take three workers: one earning half the median wage, one earning exactly the median wage, and one earning three times the median wage. Show what their payroll tax burden looks like today & what it would look like for their grandchildren in 2080. Show that the payroll tax as designed gets more regressive and less efficient over time. And see if that's enough to get payroll tax reform onto the "tax reform" agenda that will be rolling into town soon.

[P O'Neill]

At least they haven't adopted the Luskin assumption of a 100% tax on payrolls.

http://www.j-bradford-delong.net/movable_type/2005-3_archives/000216.html

[ChasHeath]

The long term projections expect the size of the workforce to slow down to two tenths of a percent per year increase in the workforce.

If the economy grows at anything approaching historical levels with a basicly fixed size labor force, wages - across the board - could do something like the price of real estate in urban centers. Limited supply, increasing demand - high wages.

That's the future the workforce should be asking politicians to assure. It would fix Social Security, and also would end the last thirty years' stagnation of low end and median wages.

[Abby]

Matt and Brad both went to the same college. Is this an example of male mentoring? Hmmmm

[alan]

> It is extremely rare for him to make a mistake,
> and his errors have declined as he gained
> experienced.

I've been pretty impressed as well. I had been reading Matt for many months before I found out how old he is. I would have guessed he'd be a geezer like Alterman or Conason, but there it is.

The reason I asked here is that Prof DeLong has linked more to Matt than to any other single blogger. Thanks for your note.

[dilbert dogbert]

I like Matt Y because his spelling is on par with mine.

[Rob]

Its all part of the secret Harvard alumni association

[RonK Seattle]

Matt makes lots of mistakes, but he produces lots and lots and lots of things that aren't mistakes.

luminous -- Share of GDP returned to ordinary labor has been slowly fading for decades, and this fade could accelerate markedly. One adjustment to this would be to pay Soc Sec out of general tax revenues rather than payroll taxes. [Of course, we'd have to beat the GOP game of shifting general taxes exclusively to labor.]

Oddly enough, the Bush plan DOES shift the burden toward general taxes -- by enormous general fund borrowings, which would be repaid out of general taxes.

DaveK -- Conceivably, in the 2080 economy we could all be capitalists, and robots will do all the labor ... leaving a residual question of how anybody would ever earn their initial capital stake, or how they would ever recover from a bad bet.

[kstreetfriend]

Mayflower Compact Coalition (Wangstas Fo' Shizzle My Nizzle)...

RNC Chairman Ken Mehlman today attended the unveiling of the 21st Century Mayflower Compact at the Mayflower Hotel in Washington D.C.. The nine-point agenda includes support for school choice and private social security accounts. The Coalition is advised in part by former House Speaker Newt Gingrich’s consulting firm.

African Americans often reach different and surprising conclusions on social issues that the casual (Caucasian) observer just won’t understand. For example, Black folks still want to see Michael Jackson find happiness. His high-pitched voice and soulful delivery is the soundtrack of generations and has a permanent place in the Black community’s psyche, no matter the plastic surgery, skin bleaching and alleged child molestation charges. Possibly, it’s the “he’s still Black” phenomenon that African Americans well understand. They want Michael Jackson’s name cleared. In short, they want him to make good music and just leave the damn kids alone.

Likewise, Blacks see Old Age Survivors and Disability Insurance Program, popularly known as Social Security, as an entitlement forced into place during a period when “bigots” wanted to run things. And against the odds, a well respected Franklin Roosevelt was able to established needed protection for the public from the economic fears of old age, sickness, accident, and unemployment. As its original name suggest, African Americans believe the insurance program was created to do much more than provide an old age benefit.

Wangstas (whites and uh oh oreos) are extremely white people who attempt to be “gangsta” (cool with Black people) in order to “pimp out.” They dress, speak and act for all practical purposes as an African Americans aside from the fact that they are not. Normally they are hated by the fam for being fake.

The White House and its oreos who support overhauling Social Security have launched a highly targeted campaign to convince Black people that President Bush’s plan to create private investment accounts will have special benefits for them. The ghetto fab element about the GOP message to African Americans: “The shorter life expectancy of Black males means Social Security in its current form is not a favorable deal.”

Proponents of privatizing social security who claim no group has as much at stake in the debate over reform as African Americans, in fact, are right. Black families of workers who become disabled or die are much more likely than their Caucasian counterparts to be dependent on the grip available from disability and/or survivor benefits. Blacks make up 12 percent of the U.S. population, but 23 percent of African American children receive survivor benefits, and 18 percent of the community are disability beneficiaries.

Although the wangstas are making a special effort to appeal to the strizzeet with the 21st Century Mayflower Compact, the “lower life expectancies” illusion appears to reached every one except the African American senior. Their attempt to focus on a very narrow element of the system (current program based on longevity is unfair) is misplaced and doesn’t gain cool points. What the oreos fail to realize is their attempt to be “down” for da brothas... is just “gosh-darn” obnoxious (using their vernacular) and another clue identifying the new face of segregation.

“A’ight?”

Social Security is an insurance program that protects workers and their families against the income loss that occurs when a worker retires, becomes disabled, or dies. All workers will eventually either grow too old to compete in the labor market, become disabled, or die. President Roosevelt created the program to insure all workers and their families against these universal risks, while spreading the costs and benefits of that insurance protection among the entire workforce.

It is a “pay as you go” program, which means the Federal Insurance Contribution Act (FICA) payroll tax paid by today’s workers are not set aside to pay their own benefits down the road, but rather go to pay the benefits of current recipients. The tax is progressive. The low-wage workers receive a greater percentage of pre-retirement earnings from the program than higher-wage workers. And, in the 1980's, Congress passed reforms to raise extra tax revenues above and beyond the current need and set up a trust fund to hold a reserve.

As was the case when the program was established, higher-wage workers still oppose the social nature of the program. They argue low rates of return as a reason to switch from the current “pay-as-you-go” system to one in which individual workers claim their own contribution and decide where and how to invest it. In short, rather than sharing the risk across the entire workforce to ensure that all workers and their families are protected from old age, disability, and death, higher-wage workers want to enable opportunity to reap gains from private investment without having to help protect lower-wage workers from their disproportionate risks.

Allowing high-wage workers (who are more likely to live long enough to retire) opportunity to opt out of the general risk pool and devote all their money to retirement without having to cover the risk of those who may become disabled or die, is da fo’ shizzle identifying the republican party’s desire to return to a segregated society.

Roosevelt’s benefit formula currently in place intentionally helps low income earners. Lifetime earnings directly factor into the formula. And, thirty-five percent of Black workers born between 1931 and 1940 had lifetime earnings that fell into the bottom fifth of earnings received by workers born in these years. African Americans’ median earnings (working-age in jobs covered by Social Security in 2002) were about $21,200, compared to $28,400 for all working-age people.

HNIC, President Bush, does acknowledge the difficulty Blacks will have in accumulating enough savings in their individual accounts to provide for a secure retirement once the progressivity of the current system is eliminated. However, he has only suggested allowing lower-income workers to place higher portions of their income into the uncertainties of investment accounts (creating even more risk).

Yes! Private accounts would be passed on to children or other heirs. But, what the HNIC and his oreos doesn’t explain is lower-income workers would be forced to buy an annuity large enough (when combined with their traditional Social Security benefit) to ensure that they would at least have a poverty level income for retirement.

Yo’ playa... da new private Social Security account fizzle sucks!

[Theresa]

David Lloyd-Jones - Thank you! That's what I keep saying, that we should uncap the income which is taxed and then give a FICA tax break for lower income people. But I don't have any info to prove that this would fund it properly, and how much of a lower income tax break we could give. Do you have any references for that?