A Math Lesson for Media Covering Social Security

[David Farber <dave () farber net>]

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From: Randall <rvh40 () insightbb com>
Date: Sat, 08 Jan 2005 12:28:22 -0500
To: JMG <johnmacsgroup () yahoogroups com>
Cc: Dave <dave () farber net>
Subject: A Math Lesson for Media Covering Social Security

http://mediamatters.org/items/printable/200501060004

A math lesson for media covering Social Security

This week, several news outlets vastly understated the amount of money
that a reported Bush administration proposal would allow workers to
divert into private accounts from their payroll taxes, which are
currently paid into the Social Security Trust Fund.

Under the present system, 12.4 percent of a worker's salary -- up to an
annual maximum level of $90,000 in 2005 -- is paid into the fund. This
amount is split evenly between employer and employee, each of whom pays
6.2 percent of the eligible salary.

According to numerous press accounts, the Bush administration proposal
would allow workers to pay only 2.2 percent of their eligible salary
into the Social Security Trust Fund, and to place four percent of their
eligible salary, up to a presently unspecified limit on the total, into
a private investment account. In other words, an employee could divert
up to 64.5 percent of the total amount of employee-paid taxes into a
private account. 

But many press outlets have erroneously claimed that the plan would
allow workers to divert only 4 percent of their payroll taxes, less than
one-sixteenth of the actual amount.

The error seems to stem from a conflation of the terms "percent" and
"percentage points." That is, under the current Social Security system,
12.4 percent of a worker's salary is paid into the Trust Fund. Under the
anticipated Bush proposal, four percentage points out of those 12.4
percentage points -- or a little less than one-third of the combined
total paid into Social Security by the worker and employer -- could be
diverted into private accounts. But many reporters appear to be
confusing this with four percent of payroll taxes -- a very different
number.

This common misunderstanding of the difference between "percent" and
"percentage point" may be better illustrated by an example having
nothing to do with Social Security: the increase from 40 percent to 50
percent will often be described as a ten percent increase. Rather, it is
a ten percentage point increase -- and a 25 percent increase. That's a
very significant difference. And when that type of error occurs in
reporting about Social Security payroll taxes, it dramatically
understates the amount of money that would be diverted into private
accounts.

Some examples:

> From a January 4 Associated Press article by AP writer Leigh Strope:

        The Bush administration is focusing on a Social Security
        proposal that would allow younger workers to invest up to 4
        percent of their payroll taxes in private accounts, with
        contributions limited to about $1,000 to $1,300 a year, an
        official said Tuesday.
        
> From the January 4 edition of CNN's Lou Dobbs Tonight:

        New information tonight on President Bush's plans to reform
        Social Security. According to reports by the Associated Press,
        an administration official now says the Bush Social Security
        plan would allow workers to invest up to 4 percent of payroll
        taxes in private accounts with an annual cap of $1,000 to
        $1,300.
        
> From an article by Washington Post staff writer and FOX News Channel
contributor Jeffrey H. Birnbaum, published in the Post January 5:

        Late yesterday, the Treasury Department and the White House
        dismissed a report by the Associated Press that said the Bush
        administration was focusing on a Social Security proposal that
        would allow younger workers to invest as much as 4 percent of
        their payroll taxes in private accounts.
        
This is a common mistake, which members of the press have been making
for years. For example, the AP's Strope made the same error in an August
2, 2001, article about Senate Budget Committee discussions on Social
Security. In that report Strope incorrectly wrote:

        Bush has suggested that younger workers could choose to invest
        up to 2 percent of their payroll taxes in the stock market, but
        hasn't said how to pay for it and is relying on his commission
        to work out details.
        
Bush's actual suggestion was that workers could invest up to two percent
of their salaries or about 32 percent of the worker-paid portion.

‹ D.B.B.

Posted to the web on Thursday January 6, 2005 at 12:01 PM EST





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