Economist Dean Baker, undeterred by Simpson's first round of insults against him, comes back with a budget quiz that Simpson, other members of the commission, and "reporters and editors at major news outlets may also want to review . . . since it seems that they could also use some additional background knowledge on the program."
- How much higher are real wages projected to be in 2040 than today? In other words, how much richer do we expect the average worker to be 30 years from now?
- How did the 2010 Trustees Report change the projections for 2040 wages compared with the 2009 report?
- If we solve the projected shortfall in Social Security entirely by raising the payroll tax, what percent of the gain in real wages over the next 30 years would have to go to pay the tax?
- What percent of real wage gains over the last 30 years was absorbed by the increase in Social Security payroll taxes?
- What percent of the projected long-term budget shortfall is due to the inefficiencies of the US health care system?
- How much wealth should we expect near retirees to have to support themselves in retirement?
- What percent of older workers have jobs in which they can reasonably be expected to work at into their late 60s?
The quiz is made much simpler by the fact that Baker provides the answers.* The point is, these are basic issues relating to Social Security that anyone writing about the issue, or particularly making decisions about the future of Social Security should have a solid grasp on. That is, if they're actually dealing with the reality of Social Security.
*Baker's answers are below the fold.
Number 1. According to the Social Security Trustees Report, the average real wage is projected to be 48.7 percent higher in 2040 than it is today. In other words, if our kids work 30-hour weeks on average, they would take home about 10 percent more than we do today working 40-hour weeks. Senator Simpson has been known to quip about how our children and grandchildren will be living in chicken coops, but he's just kidding, right?
....
Number 2: The 2010 Trustees Report had good news on the wage front. It assumed that health care reform would slow the rate of growth of employer provided health care benefits. This means that wages are now projected to grow more rapidly since Social Security money will be diverted to cover rising health care costs. In 2009, the trustees projected that the average wages would only rise by 37.2 percent between 2010 and 2040.
This means that the changes between the 2009 and 2010 Trustees Report imply that wages will be nearly 10 percent higher in 2040 than we previously believed....
Number 3: somewhat of a trick question, since it depends on exactly the formula we use. The Trustees Report tells us that if we raise the tax tomorrow by 0.96 percentage points on both the employee and employer (1.92 percent in total), then the program will be fully solvent through its 75-year projection period. If we went this route, then it would mean that the tax increase would take up 5.9 percent of the projected wage growth over the next three decades....
Number 4: The Social Security tax increases of the last 30 years took 6.8 percent of average wage growth. This is in the same range as the portion of projected future wage growth that may have to go to higher Social Security taxes....
Number 5: The United States has by far the most inefficient health care system on the planet. We pay more than twice as much per person as people in other wealthy countries with very little to show for it in terms of health outcomes. If we had the same per-person health care costs as any other country in the world, the long-term budget projections would show huge surpluses rather than deficits.
Number 6: Senator Simpson has repeatedly held up the image of affluent elderly getting Social Security checks. He talks of seniors driving up to their gated communities in their Lexuses. While this may describe Senator Simpson's friends, it is not an accurate description of the vast majority of seniors, most of whom rely on Social Security for the majority of their income.
This is likely to be even more true of the baby boom generation that is at the edge of retirement. Few have traditional defined benefit pensions. They have seen much of the wealth they were able to accumulate destroyed by the collapse of the housing bubble and the subsequent plunge in the stock market.
Number 7: Senator Simpson is still working into his late 70s as is, no doubt, the case with many of his friends also. These leads many deficit hawk types to think all workers should be expected to work until 70 or even older.