Kudos to Andrew Biggs of the American Enterprise Institute for exposing AARP’s sham study showing the economic benefits of Social Security.
The AARP study is intended to demonstrate the economic benefits of Social Security in the hope of staving off any future benefit cuts to seniors. As the study points out, the Social Security trustees inform us that the Social Security Trust Fund—speaking of “shams”—will run out of money (that it doesn’t have) in 2033. Whereupon Social Security could only pay about 75 percent of the current benefit level.
AARP wants lawmakers to know that seniors often have low incomes, depend on their Social Security checks and will spend most of it. All of which is true. And so the AARP study tries to calculate the impact of that spending on the economy.
But the AARP study only focuses on the spending side of the equation. It ignores the fact that current workers must pay 12.4 percent of their income in Social Security payroll taxes—one of the most regressive U.S. taxes. That money is promptly redistributed to seniors.
Actually, the study does mention the exclusion—tucked away in the methodology where no one will see it. “Moreover, any ‘net’ analysis would be greatly complicated by the fact that behavioral responses of individuals to the elimination of the Social Security program would be extremely difficult to predict.”
Translation: Measuring the net effect—i.e., the negative impact of the taxes versus the positive impact of the spending—is “complicated,” so forget it.
This would be like a CFO explaining to the stockholders and the media that focusing on the company’s liabilities would be difficult, so he’s only going to highlight the company’s assets.
Before the government can give a senior a dollar, it has to take that dollar away from someone. Many of those who pay those payroll taxes are also middle and lower income people who need, and would spend, that dollar just as much as a senior. The net effect of Social Security is probably closer to zero, and may even be negative, considering administrative costs and the fact that the tax comes from workers, who are more likely to invest it productively.
Most people, and certainly the press, pay virtually no attention the methodology. They just look at the headline and would not realize that there are real costs to real people. And AARP has no intention of informing them.
AARP has published a study to demonstrate how much the economy benefits when Paul is given a dollar, and completely ignores that Peter has been robbed.