The Wall Street Journal told readers today that, according to the SS trustees, it would take a 16 percent increase in Social Security taxes to make the program solvent over its 75-year planning period. Most people don't know that the current size of the SS tax is 12.4 percent (6.2 percent on both the employee and employer), so when they read this article they probably thought that it would take a tax increase of 16 percentage points rather than 1.95 percentage points under the trustees projections. Why not try to inform readers instead of scare them? It's also worth noting that the program would be in much better shape if trade policy had not been used to shift wage income upward over the last quarter century. In 1983, 90 percent of wage income fell under the wage cap (currently $97,000). At present, just over 82 percent of wage income falls underneath the cap because so much wage income has been shifted to high-wage earners. If there had not been this upward redistribution, the projected shortfall would be about half as large. This upward redistribution could be reversed if trade policy focused on subjecting highly paid professionals to international competition. The Post coverage was not much better, blaming the baby boomers' for the projected problems in Social Security and Medicare. In fact, the projected explosion in health care costs is by far the main problem with Medicare. If the health care system is not fixed, then there is no way to save Medicare. The projected rise in health care costs also hits Social Security by shifting money away from taxable wage income to non-taxable benefits. If the non-wage share of compensation had not increased over the last quarter century, and were not projected to continue increasing over the next seven decades, the projected shortfall in SS would be around 10 percent less than it is in the latest projections. As always CEPR has the real story.
--Dean Baker
