The Washington Post Is a Mess: Social Security Edition

September 28, 2014

The Washington Post brought its campaign against Social Security into the name-calling phase with a full page article headlined, “Social Security Is a Mess. How to Fix It.” (That is the print edition headline, the web version is slightly different.) The piece includes a standard list of revenue and spending items that could close the shortfall that is first projected to arise in 19 years.

There are a few points worth making about this piece. The first is the obvious. Name-calling doesn’t belong in a serious newspaper. The Social Security system faces problems, but so does the Justice Department and the Defense Department, or for that matter Amazon, the company controlled by Washington Post owner Jeff Bezos. It is unlikely we will ever see an article headlined “Amazon is a Mess.” The Post should try at least a little bit to separate the views of the editors/publisher from the way it presents the news. That is what serious newspapers do.

The second point is that in the scheme of things Social Security is an incredibly effective program. It has kept tens of millions of people out of poverty. It is the main source of retirement income for current retirees and will grow as a share of most workers’ retirement income in the years ahead. It has very little fraud and abuse. In fact, fraud is so rare that the Washington Post thought it was worth a front-page story to report that 0.006 percent of Social Security benefits over the prior three years had been paid out to dead people. And its administrative costs are less than one-tenth as large as those of private sector firms providing retirement accounts. If Social Security is a “mess,” then the adjectives appropriate for other large institutions could not be printed in a family paper.

The piece also wrongly asserts that the shortfall would be easier to solve if it were done sooner. That might be true if we envision that the gap would be closed entirely or in part on the benefit side. However if the gap is closed on the revenue side it doesn’t follow that there is an special advantage to having a fix implemented sooner. For example, if we raise the cap on taxable wages and raise the payroll tax beginning in 2025, it is not clear that there is any big advantage to writing that into law in 2014 as opposed to 2024. (There may be some small advantage that people can adjust their behavior, but this is a very minor issue.)

It would also have been useful to put the projected shortfall in some context. Much of the shortfall stems from the upward redistribution of income over the last three decades. This is in turn is attributable to policies like special too big to fail insurance for Wall Street banks, trade policy that was designed to put downward pressure on the wages of ordinary workers, and Federal Reserve Board policy that has deliberately kept unemployment high in order to undermine workers’ bargaining power.

This upward redistribution is important to Social Security for two reasons. First, it has shifted a large amount of wage income to workers earning above the cap. The share of wage income that has escaped taxation in this way rose from 10 percent in 1983 to 18 percent in recent years. Similarly, the shift from wage income to profits in the last 14 years has also deprived the system of revenue.

The other reason this shift is important is that it has kept wages from growing in step with productivity. If the typical worker’s wages had risen in step with productivity since 1980 they would be more than 30 percent higher today. In this context, a 2-3 percentage point rise in the payroll tax (like we saw in both the decade of the 1970s and the 1980s) would probably not seem like that big a deal. Workers care first and foremost about their after-tax wage, not the tax rate. While politicians and newspapers might focus on the latter, workers would be far better off with 30 percent more going into their paychecks, even if 2-3 percent more was coming out in taxes.



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