A Social Security Statement Improvement

August 27, 1999

On Wednesday, CNN reported on the Social Security Administration's plan to being sending workers its new Social Security Statement, a revamped version of its Personal Earnings and Benefit Estimate Statement (PEBES).

The older PEBES statement failed to disclose payroll taxes paid by a worker's employer, which economists agree is reflected in lower employee wages. This made Social Security seem like a good deal, since the PEBES statement forecasted benefits but revealed only half the taxes that went to pay for them.

The new Social Security Statement is an improvement on the PEBES statement. Congress forced the Social Security Administration to disclose both the employer and employee share of payroll taxes, so that workers get a better idea of how much they are paying into the system relative to what they might receive in benefits.

Yet, "might" is the operative word when it comes to benefits. After 2014, payroll taxes will no longer be sufficient to pay full benefits. Over the long term, Social Security's payroll tax deficit equals $20 trillion, in today's dollars.

The Social Security Statement shares a flaw of the PEBES statement in that it neither discloses Social Security's multi-trillion dollar unfunded liability nor mentions the tax increases, benefit cuts or increased retirement age that would be necessary to make up that deficit.

Ed and Janice Micka, interviewed by CNN, seemed unconvinced by the Social Security Statement. "I do not want to be counting on something that is not guaranteed," Ed said, while Janice said that, for many people, "it's going to be a surprise when they see that a) it's not much; or b) it might not be there at all."

Social Security promises trillions of dollars in benefits that it will be unable to pay. And the benefits listed on your Social Security Statement are probably part of that.

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