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Social Security’s $32.2 Billion Mistake



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In the midst of electoral chaos yesterday, I did not get around to noting a striking screw-up at the Social Security Administration — you know, the folks with which we’re supposed to entrust our retirements. I’ll get to that in a minute, but first, a Bob Herbert column sent along by a friend, on rising income inequality and a new book on the subject by two political scientists:

Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits.

“Over the last generation,” the authors write, “more and more of the rewards of growth have gone to the rich and superrich. The rest of America, from the poor through the upper middle class, has fallen further and further behind.”

As if to underscore this theme, it was revealed last week (by David Cay Johnston, a Pulitzer Prize-winning former reporter for The New York Times), that the incomes of the very highest earners in the United States, a small group of individuals hauling in more than $50 million annually (sometimes much more), increased fivefold from 2008 to 2009, even as the nation was being rocked by the worst economic downturn since the Great Depression.

Johnston’s report is here. The relevant bit:

The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

Back in 1994, when the top category the government reported on was $20 million or more of compensation, only 25 people were in that rarefied atmosphere, and their average earnings came to just under $45 million in 2009 dollars.

Johnston then relies heavily on the top-earner data to draw all sorts of doom-saying conclusions:

What does this all mean? It is the latest, and in this case quite dramatic, evidence that our economic policies in Washington are undermining the nation as a whole.We have created a tax system that changes continually as politicians manipulate it to extract campaign donations. We have enabled ‘‘free trade’’ that is nothing of the sort, but rather tax-subsidized mechanisms that encourage American manufacturers to close their domestic factories, fire workers, and then use cheap labor in China for products they send right back to the United States. This has created enormous downward pressure on wages, and not just for factory workers.

Combined with government policies that have reduced the share of private-sector workers in unions by more than two-thirds — while our competitors in Canada, Europe, and Japan continue to have highly unionized workforces — the net effect has been disastrous for the vast majority of American workers. And of course, less money earned from labor translates into less money to finance the United States of America.

This systematic destruction of the working class and middle class has come during an era notable for celebrating the super-rich just for being super-rich. From the Forbes 400 launch in 1982 and Robin Leach’s Lifestyles of the Rich and Famous in 1984 to the faux reality of the multiplying Real Housewives shows, money voyeurism has grown in tandem with stagnant to falling incomes for the vast majority. There has also been huge income growth at the top and the economic children of income inequality: budget deficits and malign neglect of our commonwealth.

This orgy of money exhibitionism has created a society in which commas — it takes three to be a billionaire — count more than character. We have gone so far down this path that we bailed out bankers, allowing them to keep the untaxed wealth in their deferral accounts and, with a few exceptions, retaining shareholder value, while wiping out investors in General Motors and Chrysler as a condition of their bailouts. And while autoworkers had to take severe pay cuts, bonus time on Wall Street is at new record levels.

Wow, that does sound bad. There’s only one problem. The SSA data Johnston (and Herbert) rely on is completely bogus — the result of a massive error. Check it:

The Social Security Administration asked its inspector general to investigate how a $32.3 billion mistake skewed its statistics on 2009 wages in the U.S.

Two people were found to have filed multiple W-2 forms that made them into multibillionaires, an agency official said yesterday. Those reports threw statistical wage tables out of whack and, in figures released Oct. 15, made it appear that top U.S. earners had seen their pay quintuple in 2009 to an average of $519 million.

When the phantom multi-billionaires were taken out of the mix, the average incomes of top earners declined 7.7 percent, and the combined total earned by the wealthiest Americans declined even more precipitously, from $11.9 billion in 2008 to $6 billion in 2009.

By the way, neither the Herbert column — which was prominently featured on the NYT page, and high on the lists of “most e-mailed” articles throughout much of the day yesterday — nor the Johnston report have been amended.

UPDATE: Mr. Johnston writes me:

Your final point about me in your post is dead wrong.

The Social Security Administration discovered its mistake BECAUSE my column in Tax Notes drew attention to the figures, which I accurately reported. Gosh, but for my accurate reporting this mistake would have stayed permanently in the record and forever given us a false impression of wage income in 2009!

When the government posted new data I posted a new column — see SCARY WAGE DATA II at tax.com. (My post was delayed a few hours because I had a class of law and graduate business students waiting for me.)

But I did much more than just a new column with the new government figures.  

I spent much of Tuesday contacting every news organization and website I could find that had relied on those numbers to alert them that the government had revised the data. See the post about this at the end of my revised column which tells about this. In addition, a Google blogs search will show you numerous web pages were I posted a corrective — which goes way beyond the standards of our trade as journalists. How many journalists do you know who would have done that?

Government data is often revised later. Journalists routinely report that the inflation or jobless figures, for example, were revised, so the tone of your post is inappropriate unless you think reporters have some magic capacity to know what is behind the official government data on which we all rely.

Duly noted. When I said Johnston’s initial report had not been amended, that was true, but only because I was looking for a correction in that  post (as I’m doing here). His efforts to correct the record are duly noted! Now, I await a similar e-mail from Herbert and the NYT!



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