The Corner

Social Security and Growth, Again

Matthew Yglesias asserts that higher economic growth would reduce Social Security’s shortfall. Here’s a paper on the question that reaches the conclusion that if growth helps at all, it won’t help much.

Higher growth means the system gets more taxes in but also pays more benefits out (since benefit levels are tied to wages). Of course the higher revenues come in first and the higher benefits go out later, so within any arbitrarily-defined time-frame higher growth may appear to improve the situation quite a bit. But that’s only because that time frame will capture more of the higher revenues than the higher expenses.

Also, this effect would not solve the problem even if it were real rather than illusory. Real wage growth over the last 40 years has been 0.9 percent annually. The Social Security Trustees estimate that even if the next 75 years see much faster growth–1.6 percent a year–the long-term cash deficit falls from 5.2 percent of payroll only to 3.9 percent.

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