Monday, May 02, 2005

Paul Krugman's Misleading Math

In his recent columns, the formerly respected economist turned left wing Bush hater has been vociferously attacking any and all attempts to reform Social Security. In today's editorial he turns his teeth on Bush's recent proposal, at last week's press conference, to limit social security payments to the rich in order to hold down its cost and help stabilize the system. Usually liberals like sticking it to the rich, but for some reason that only applies to taking taxes from them, not giving them benefits.

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.

In short, this would be a gut punch to the middle class, but a fleabite for the truly wealthy.

Even if we assume he is telling the truth, and as Don Luskin points out, he probably isn't, this comparison is incredibly misleading. He is claiming that the rich are not "feeling any pain' from these cuts. But isn't that the whole point? Yes, millionaires will not see much of a difference if their benefits are cut, but that is the whole point of cutting it in the first place! You could eliminate Bill Gates benefits entirely and he wouldn't notice, so why are the taxpayers of America paying for his benefits? Krugman manages to argue against his own point.

Why doesn't Krugman compare the total amount of benefits the "rich" get before and after the change? That would give us a truer indication of what the changes mean to the system, not to the individual. Social security payments are capped to a certain amount, so for the rich they will always be a smaller percentage of their income, regardless of their level. The whole point of the change is not to "cause them pain" as Krugman appears to desire, but to save money in the system by giving it to people who need it the most. Gone are the days when taxes are a mere form of income to support government programs, they are now a form of punishment for those who are in the wrong social class.

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