Comparing the High-Income Tax Cuts and the Social Security Shortfall
http://www.offthechartsblog.org/comparing-the-high-income-tax-cuts-and-the-social-security-shortfall-2/
Posted by: Paul N. Van de Water
Posted in: 2001/2003 Tax Cuts, Deficits and Projections, Federal Budget, Federal Tax, Social Security
The Atlantic’s Megan McArdle has written another post about our comparison over the next 75 years of the Social Security shortfall and the cost of the Bush-era tax cuts for high-income taxpayers. The gist of Ms. McArdle’s argument seems to be that we’re not computing the present value of these two policies in the same way. That’s simply incorrect.
Our figure for the Social Security shortfall comes straight from the 2010 Social Security Trustees’ Report. The report estimates that the program’s shortfall over the long term (which the trustees define as the next 75 years) is equivalent to 1.92 percent of payroll subject to Social Security tax, or 0.7 percent of gross domestic product (GDP). (See Table IV.B5 on page 63 and Table VI.F4 on page 187.)
Note that the trustees don’t define the shortfall as simply the difference between the present value of the taxes Social Security will collect and the benefits it will pay out over the next 75 years. The trustees also take into account the current amount of the Social Security trust funds — something that Ms. McArdle has omitted.
We estimated the 75-year cost of the high-income tax cuts in a comparable manner. On Tuesday I listed the estimate’s three components, which total $837 billion (0.43 percent of GDP) over the 2011-2020 period and $120 billion (0.5 percent of GDP) in 2020 alone, according to the Treasury Department and Congress’s Joint Committee on Taxation.
We projected the cost of the tax cuts for another 65 years using their average rate of growth for 2017-2020, discounted the costs back to the present using a discount rate that averages about 5.25 percent, and expressed them as a percentage of GDP.
Ms. McArdle says that the tax law won’t stay the same for 75 years. That’s true, but Social Security law won’t stay the same for 75 years either. The whole point of projecting the long-term cost of policies is to help policymakers decide whether to continue or alter them. And our analysis showing that the Social Security shortfall is much smaller—and the cost of the high-income tax cuts is much larger—than they are often portrayed is designed to inform coming debates over the future of both policies.
Ms. McArdle also says that the Social Security shortfall eventually exceeds the cost of the high-income tax cuts. That’s true, too. But the cumulative amounts are about the same for the next 75 years, which is not “a time so brief as to be meaningless.”
More About Paul N. Van de Water
Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.
Full bio | Blog Archive | Research archive at CBPP.org
If the Social Security trust fund is made up of IOU’s from the Treasury, then there is no money in the trust fund. To pay the IOUs, the treasury will have to find the money, either by issuing bonds or printing it, or by taxing someone.
Unless all the assumptions that go into a long term projection are fully disclosed and understood, such projections aren’t any more meaningful than the predictions made in the Farmer’s Almanac on the weeather [sic] for next year.
Why should anyone trust anyone in government if we can’t cross examine or test the assumptions, check the sources, the influences, identify the biases and make an independent test of their statements.
It makes sense that as the number of retirees increases and their life expectancy increases, the amount paid in will not cover what is paid out. Either what is paid in goes up or what is paid out goes down or there is yet another yawning deficit. It seems we already have plenty of deficits and hardly need another one, especially one that is mathematically predicted.
prove it you are wrong