February 14, 2016
Robert Samuelson really, really wants to cut Social Security and Medicare and he is not going to let the data get in the way. His column today complains about the lack of straight talk on the budget. He calls for candor when discussing the budget. Unfortunately he resists this standard himself.
The argument is the usual, rising Social Security and Medicare spending are going to crowd out other areas of the budget. As he tells us:
“The basic conflict posed by the budget is not between rich and poor but between workers and retirees. Present policy favors retirees over workers — the past over the present and future — because, politically, tampering with benefits is off-limits. The rest of government absorbs the fiscal consequences of an aging population.”
Okay, let’s inject a little straight talk and candor into Samuelson’s discussion. First, he tells us that he wants to free up money for other programs by:
“Should we be gradually modifying Social Security and Medicare — raising eligibility ages, reducing benefits for wealthier elderly — to take pressure off the rest of the budget?”
Telling people to work later in their lives is a great thing for people who make their living working at a desk. It’s a lot harder for most of the population who do things like working waiting tables and cleaning rest rooms. In fact, most workers without college degrees work in jobs that are classified as physically demanding or involve difficult work conditions (e.g. working outside all day).
The other part of the story, “reducing benefits for wealthier retirees” is also far less than candid. While we can get lots of money by taxing the wealthy, we can’t get much money by taking away their Social Security and Medicare. The reason is simple: the rich have much higher incomes than the rest of us; they don’t get much more in Social Security and Medicare benefits than the rest of us.
While Samuelson doesn’t give us his cutoff for “wealthy” if we take the $400,000 figure that was used by Congress in setting the floor for the extension of the Bush tax cuts, it would save us less than 0.5 percent of Social Security spending. Even if we go down to the $250,000 measure that Secretary Clinton used as her cutoff for people that she would subject to tax increases, we would still save less than 1.0 percent of Social Security’s budget.
In order to save any reasonable about of money by cutting benefits for the wealthy, we would have to go down to around $40,000 in annual income. This is not an income that most people would consider as “wealthy,” but Samuelson lacks the candor to talk straight with his readers.
It is also worth pointing out that the wealthy did pay into the program for these benefits. Social Security is already structured to be progressive in its payback so the wealthy will get a low rate of return on their contributions. While the genuinely wealthy can of course afford to get lower benefits, they could also afford to have the interest on the government bonds they hold subject to means-testing. The latter would be just as fair (and raise much more money) as means-testing Social Security benefits.
With Medicare benefits, the most obvious way to save money would be to reduce the cost of health care, since we pay more than twice as much per person as people in other wealthy countries. This would mean paying less money to drugs companies, medical equipment companies, and doctors. But Samuelson isn’t interested in seeing these folks get less money; he wants to protect their income while forcing the elderly to get by on less.
Of course the most important point, as folks familiar with economics know, is we should want to see larger deficits, not smaller deficits. If we had larger deficits, we would have more employment and output. This would hugely help our children, since many of them are growing up with parents who are unemployed, underemployed, or getting low pay because the weak labor market prevents their parents from getting pay increases. If we had larger deficits, it would create more demand in the economy and more employment.
The government programs that are being squeezed now are not being squeezed because of budget deficits, they are being squeezed because people with deficit fetishes like Samuelson are preventing the government from spending money on these programs. Deficits can be a problem. We would know if this is the case because we would be seeing high interest rates and rising inflation. In fact, we are seeing extraordinarily low interest rates and low and falling inflation.
It’s fine that people have deficit fetishes, just like they’re welcome to worship rocks or birds, but these fetishes have no place in serious policy debates. Unfortunately, we see this sort of nonsense from Samuelson because the Washington Post is owned by a billionaire, who apparently wants people to believe, “the basic conflict posed by the budget is not between rich and poor but between workers and retirees.”