Building an Economy that Works for Everyone

What’s a trillion, anyway?

By David Cay Johnson, from the Columbia Journalism Review

david cay johnsonThroughout the weeks of intense coverage over the scheduled end of the Bush income tax cuts and the Obama payroll tax cut, reporters routinely cited dollar estimates in the millions, billions, and trillions. Such big and abstract-but-scary numbers tend to challenge normal human understanding.

But there are ways to make such numbers real—an increasingly important skill as we move deeper into the tax and budget debates, and as the discussion in Washington moves to the spending side.

Bill Marsh, a graphic artist for The New York Times, has shown one way to reduce huge figures to meaningful numbers. Marsh produced a particularly clear and useful graphic to accompany a Sunday opinion piece about what the authors say the government fails to include in its calculations: how much increased lifespans are expected to add to the cost of providing Social Security benefits.

Two professors—Gary King of Harvard and Samir S. Soneji at Dartmouth—came up with a cost of $801 billion by 2031. In an attempt to give meaning to the number, they point out that this is about 30 percent of the current Social Security Trust Fund of $2.678 trillion. (Details are in their academic paper.)

But still, how much is it, really? And more to the point, what would it cost taxpayers to cover this $801 billion gap, if policymakers decided to fill it? For his graphic, Marsh persuaded the professors to recalculate their figures to show the increased payroll tax deduction in 2022 that would be required to raise $801 billion, for a worker at the average, or mean, wage, which they estimated at $43,000 in 2012. (For 2011 the averagewas $41,211.36.)

The result: the cost per worker at the average wage would be $60 a year in increased payroll tax deductions in 2022. There is a figure you can understand. It could also have been reported as $5 per month, or $1.15 per week—all figures anyone can easily grasp. In 2032, the authors calculated, it would cost an extra $120 per year. (In fairness, none of those figures include the employer’s matching contribution, so in terms of total cost they should all be doubled.)

“It was Bill Marsh who pushed us to get to that figure,” King told me. Unfortunately, King and Soneji did not use the clarifying figure in the piece itself. But any reader who went to the graphic would come away understanding what they wrote.

Reporters covering the debate over government spending would do well to find ways to break down big figures, as Marsh did. There are many ways to do so.

For example: consider the costs of Medicare, which are rising faster than the economy is growing. In the coming weeks, we are sure to see repeated references to Representative Paul Ryan’s plan to cut Medicare costs over the next 75 years, as laid out in his three roadmaps for the budget.

Ryan’s analysis takes the future stream of higher costs and discounts them to their equivalent as a lump sum today. Without questioning his math assumptions (which seem reasonable to me at first glance), his estimated net current-value savings: $4.9 trillion.

But what does $4.9 trillion in “savings” mean to anyone? One way to imbue that figure with meaning is to show that is equal to nearly one-third of a year’s US economic output, or all of the economic activity in the country from January until late April. A better way would be to compare the rising costs of Medicare to private healthcare, as David Rosnick and Dean Baker did. These two, both liberal economists at the Center for Economic and Policy Research, simply applied Ryan’s mathematical formula to private healthcare spending. They factored in the Congressional Budget Office’s 2011 calculation that the Ryan plan would add the cost of what Baker and Rosnick called “waste associated with using a less efficient health care delivery system.”

The math shows that private healthcare costs would rise by $34 trillion over that 75-year period. Subtract Ryan’s savings to the government vs. the higher cost of care and you get a net increased expense of about almost $30 trillion. In other words, for each dollar that Ryan’s plan would save the government, they calculated, taxpayers’ private costs would go up by $6. Reporting that a buck of tax savings would cost six bucks enables readers, listeners, and viewers to weigh the merits of the proposal.

A third example: we often hear that Social Security is going broke. That is simply not true. And it also does not contribute a cent to the federal budget deficit or the federal debt.

And mind-numbing numbers are involved in any discussion about it. The Social Security Trust Fund had nearly $2.7 trillion in assets at the end of 2011, which is a bit more than total federal government revenues that year. And Social Security reported a surplus. Assets in the retirement portion of the trust grew by $95 billion, while the fund for disabled workers shrank by $26 billion for a net increase of $69 billion.

That trust fund was built with taxes paid since 1984 that were greater than benefits paid, and with interest on those assets. Now as the Boomers retire, the trust will be drawn down until it is exhausted in about 20 years. Between now and 2087, Social Security will owe more in benefits than the trust fund and future tax revenues combined, a shortfall estimated at the equivalent of $8.6 trillion today.

Big and scary as that number is, when you break it down across 75 years and more than 151 million workers, the number necessary to make up that $8.6 trillian shortfall shrinks fast. Divide that huge figure by the number of worker years (151 million times 75) and the shortfall comes to about $760 per worker year. Since half of that would come from taxes on workers (with employers paying the other half in a matching tax) the reduction in take home pay averages about $7.50 a week.

Restoring the Reagan era policy of applying the Social Security tax to 90 percent of salaries, up from the 86 percent taxed in 2011, would bring in another $31 billion or so annually. That would reduce the cost to the average wage worker of meeting the gap down to $275 of payroll tax, or a bit more than $5 a week—a buck a day.

That is a figure people can understand—a buck a day to make Social Secuity solvent forever, as opposed to the incomprehensible net present value of $8.6 trillion.

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