Monday, May 02, 2005

Krugman Continues on a State of High Dudgeon

Words that ought to alert any reader of the New York Times Op-ed page to be ready for a shell game:

I asked Jason Furman of the Center on Budget and Policy Priorities to calculate the benefit cuts under the Bush scheme ....

Now that we're paying attention, let's see how he does it:

... as a percentage of pre-retirement income.

Now, we cut to the chase:

The average worker - average pay now is $37,000 - retiring in 2075 would face a cut equal to 10 percent of pre-retirement income. Workers earning 60 percent more than average, the equivalent of $58,000 today, would see benefit cuts equal to almost 13 percent of their income before retirement.

But above that level, the cuts would become less and less significant. Workers earning three times the average wage would face cuts equal to only 9 percent of their income before retirement. Someone earning the equivalent of $1 million today would see benefit cuts equal to only 1 percent of pre-retirement income.

Which is merely the elementary school arithmetic of the progressivity of Social Security's benefit formula. People who are now receiving little in benefits will have less to cut, percentage-wise.

To take Krugman's last example, 1% of $ 1 million is $10,000. But only $90,000 of anyone's income is subject to Social Security's 12.4% tax, which means that Paris Hilton will face a lifetime of $11,000 yearly payroll tax contributions on her earnings as a paid party guest, only to receive, when she's 67--perish the thought--the equivilant in 2048 of 12% of $90,000 (i.e. less than she paid in).

Perhaps Professor Krugman could have his friend at CBP calculate just what the return (spectacularly negative unless she lives into her hundreds, which is highly unlikely given would be on her 'investment'. Better yet, what the opportunity cost will likely be.

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