Saturday, November 20, 2004

Payroll tax vs productivity: what would it take.

Can we tax ourselves or grow the economy in such a way that we don't need to "fix" Social Security? Any reader of the Op-Ed pages over the last fifteen years or so would say "Of course not". But let's take a look at the numbers, let us establish the parameters here. Let us ask the two key questions. One, how much would we have to raise payroll tax today to solve the whole problem even given the fairly dire predictions of the Intermediate Cost alternative (the standard model, see below)? Two, if we do nothing at all what is the rate of economic growth that would be required to save the day anyway? From the Reports:

1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- Report Year
2.19% 2.23% 2.19% 2.07% 1.87% 1.86% 1.87% 1.92% 1.89% 1.92% Payroll tax increase (Intermediate Cost)

2.1% 2.2% 2.2% 2.1-2.2% 2.2-2.4% 1.8% 1.9% 1.9% 1.9% 1.9% Productivity Growth in out years to fix (Low Cost)

What this tells me is that we can take the Trustees' Reports at face value and still conclude there is no crisis here. Inaction shoud have led to an increase in the fix or required a higher level of economic performance to save the day. That 2.19% of payroll that didn't flow into the Trust Fund since 1998 is still in my pocket, and now they are telling me that not only didn't they need it, they only need 1.92% going forward. Up from the 1.89% in the 2004 Report, but then again abandoning all pretense at projecting realistic growth for 2005.

A crisis that left unaddressed requires a flat line fix is just not a crisis.

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