In a March 23 article on the newly released Social Security trustees report, Associated Press economics writer Martin Crutsinger overstated the magnitude of payroll tax increases or benefit cuts that the report estimated would be necessary to cover the system's 75-year unfunded obligations by misquoting Treasury Secretary John Snow's remarks about the estimate. Crutsinger accurately reported that "[t]he trustees said that Social Security's unfunded obligations total $4 trillion over the next 75 years, an increase from last year's projection of $3.7 trillion in unfunded liabilities." But he continued with a false statement:
Snow said that to meet that shortfall, Social Security payroll taxes would have to be raised by 3.5 percentage points or benefits would have to be cut by 22 percent.
In fact, true 75-year estimates were substantially smaller than what the AP reported, as even Snow noted. From the 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds:
For the trust funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 1.92 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 12.8 percent, general revenue transfers equivalent to $4.0 trillion (in present value) could be made during the period, or some combination of approaches could be adopted.
In mentioning higher figures, Snow was referring to tax increases or benefit cuts that the trustees projected would be necessary to keep the program solvent over an infinite time horizon, not the 75-year period commonly used for actuarial projections. But the American Academy of Actuaries has criticized the use of such infinite-horizon projections as misleading, as Media Matters for America has noted.
Here's what Snow actually said:
The unfunded obligation, that is, the difference between the present values of Social Security inflows and outflows plus the existing trust fund, is $11.1 trillion on a permanent basis [i.e., infinite horizon], and $4.0 trillion over the next 75 years. The actuarial imbalance as a percent of taxable payroll is -1.92 percent over 75 years and -3.5 percent over the indefinite future. This means that taxes would have to be raised immediately by 3.5 percentage points, or benefits reduced immediately by 22 percent, to make the system whole on a permanent basis.