March 30, 2015
Yes, once again Robert Samuelson stresses the urgency of cutting Social Security and Medicare. It’s the usual pox on both your houses story, but as usual he leaves his thumb on the scale. In discussing the Republicans’ proposals to save money by cutting spending, he says that their budget saves $2 trillion over the next decade (@ 0.9 percent of GDP) by repealing Obamacare. This is not quite right. The Republican proposal repeals the spending in the program, but leaves most of the revenue that paid for the spending in place.
In making the case for cutting Social Security and Medicare he suggests raising the retirement age to 69 or 70 over 15 years. By comparison, in 1983 the normal retirement age was raised from 65 to 67 over a 40 year period, so Samuelson is proposing a very abrupt increase in the retirement age. (The increase from age 66 to 67 is being phased in over the years 2016-2022, so Samuelson’s rise would overlap with this rise.) More accurately, this should be thought of as a cut in benefits of almost 20 percent over a 15 year period. In addition, Samuelson also wants to raise the age of Medicare eligibility to 69 or 70, implying large increases in health care costs for people between age 65 and 70.
The median retiree will have virtually no income other than Social Security in retirement. The average Social Security benefit is a bit less than $1,300 a month, yet somehow Samuelson views these cuts as being progressive. He does also want to cut benefits for “wealthier” retirees. In order to get any notable savings it would be necessary to have a cutoff for benefit cuts at around $40,000 of non-Social Security income. This gives a whole new definition to the term “wealthier.”
The idea that we face any serious budget problems demanding immediate action is a Washington fantasy. For the foreseeable future, with the economy below full employment, we would be much better off with more spending rather than less. Furthermore, if we are worried about the projected deficits toward the end of the 10-year budget horizon the best route would be to have the Fed keep interest rates low and allow the unemployment rate fall back towards its pre-recession level.
The idea that the government can never raise taxes is also bizarre. The Social Security tax was raised by more than two percentage points in the 1980s. This did not prevent healthy job and GDP growth. And, people have shown a willingness to pay more in taxes to preserve benefits. In fact, only about 10 percent of the population even noticed the two percentage point jump in the payroll tax at the start of 2013. So the idea that we can never raise taxes to support Social Security is an invention of Robert Samuelson and the Washington Post gang, not a claim that is based on evidence. It is also worth noting that if workers were receiving their share of productivity gains, any possible increases in Social Security taxes would be trivial by comparison.
Source: Social Security Trustees Report and author’s calculation.
Finally, we might expect that people’s willingness to pay taxes would be affected by what they get for tax dollars. With a much larger share of health care spending being paid by the government due to Obamacare, it might be reasonable to think that people would be willing to pay some of their savings in higher taxes. This possibility has apparently never occurred to Robert Samuelson and the Washington Post crowd.
It is also worth noting that the huge slowdown in health care cost growth has apparently made no impression on this gang. Why should they let reality interfere with their drive to cut Social Security and Medicare?
Note: chart added.
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