Is Social Security an Exemplar of Efficiency?

It isn’t crazy to ask why administrative costs have increased over a seven-decade period of massive technological improvement.

Letters to the WSJ. 

"As Alan Blinder notes in his op-ed “What Social Security Could Teach DOGE About Efficiency” (May 8), Social Security holds some significant administrative advantages over private retirement or insurance plans. The Department of Government Efficiency has also made some outlandish claims regarding fraud in the program. Nevertheless, it isn’t unreasonable to seek greater efficiency in the Social Security Administration.

In its simplest terms, the retirement program does three things: It records employees’ earnings, calculates their benefits and pays them checks in retirement. From 1957 to 1961, the first five years for which data are available, the retirement program’s administrative costs equaled $901 per benefit claim (in today’s dollars).

Today, recording earnings, calculating benefit amounts and paying benefits are fully electronic. Yet from 2017 to 2022, the retirement program’s administrative costs were equal to $945 per retirement claim. It isn’t crazy to ask why administrative costs have increased over a seven-decade period of massive technological improvement.

Andrew G. Biggs

American Enterprise Institute

Washington

In praising the “remarkable efficiency” of the Social Security system, Mr. Blinder makes a mistake common among economists: overlooking the overhead costs of taxation. If you assume that the money flowing into the system is free, it’s easy to praise a government spending program.

Unfortunately, tax systems involve significant overhead costs. First, there is the disincentive cost. When you tax labor, you discourage work; when you tax production, you discourage production. In praising President Franklin D. Roosevelt’s wisdom in embracing the Social Security system, Mr. Blinder fails to grasp how the burden of the new taxes on labor and business prolonged the Depression.

Then there are compliance costs: all the time and money wasted in keeping tax records and filling out forms. When I testified on this subject before Congress in 1995, I cited the Arthur D. Little study, supervised by the Internal Revenue Service, which found that tax compliance burdens drained 10.2 billion hours of work. This was the equivalent of having 5.5 million people—nearly the entire labor force of Indiana, Iowa and Maine combined—working all year on nothing but this wasteful red tape.

In my compilation of the overhead burden of the tax system, the overall figure I came up with was 65%. That is, to raise one dollar through the tax system costs $1.65—a figure much higher than the costs of private systems of providing benefits.

James L. Payne

Sandpoint, Idaho

Mr. Payne is author of “Costly Returns: The Burdens of the U.S. Tax System.”"