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Home Publications Blogs Beat the Press David Brooks Doesn't Have Access to the Medicare Trustees Report

David Brooks Doesn't Have Access to the Medicare Trustees Report

Tuesday, 21 August 2012 03:58

David Brooks makes one of his usual balanced pitches for the Romney-Ryan ticket. As usual, just about everything of substance in the piece is wrong.

He begins by bemoaning the fact that: "Entitlement spending is crowding out spending on investments in our children and on infrastructure." (Btw, "entitlements" is pundit speak for Social Security, Medicare, and Medicaid.)

Brooks tells us:

"In 1962, 14 cents of every federal dollar not going to interest payments were spent on entitlement programs. Today, 47 percent of every dollar is spent on entitlements. By 2030, 61 cents of every noninterest dollar will be spent on entitlements."

Yes, that sounds really horrible, except to those who know budget data. The vast majority of this entitlement spending has been paid for with designated revenue streams. Back in 1962 the Social Security tax rate was 6.2 percent (combined employer and employee). Today it is 12.4 percent. The Medicare tax was zero. That's because we didn't have Medicare. Today it is 2.95 percent.

These taxes together cover the vast majority of the cost of these programs. Voters have repeatedly shown themselves willing to pay higher taxes to support the programs. It is true that if we don't get health care costs under control, they will eventually wreck the economy and also lead to huge budget deficits.

But the issue here is health care costs, not Medicare. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses not deficits. This is why serious people focus on the need to fix the health care system, not Medicare.

The idea that spending on Social Security and Medicare is crowding out other items in the budget is also misleading at best. Those with access to tax data would see that the combined tax on individual income taxes, corporate income taxes and excise taxes (mostly tariff revenue) fell from 13.8 percent of GDP in 1962 to 9.0 percent of GDP in 2011.

Is Brooks trying to tell us that we had to cut corporate income taxes, reduce the top marginal tax rate from 90 percent to 39.6 percent, and eliminate most tariffs because of Social Security and Medicare? The reduction in revenue from these sources is reason why the non-Social Security and Medicare share of the budget is shrinking. We won't get more money for the investment portion of the federal budget unless we look to raise these other taxes back towards their former levels -- unless Brooks want to use money designated for Social Security and Medicare to finance other areas of the budget.

The transformation of the federal government can be thought of as being comparable to a corner store that begins a mail order operation. If the store's mail order operation grows rapidly, then it will comprise an ever larger share of the store's sales. This will be even more true if the store decides to cut back its store space because it cares less about the old-fashioned store.

If at some point the store's owners decide that they really value the traditional store, they will not be able to rebuild the business by cutting back the mail order operation. They will have to get more store space. This is the story of the federal budget outside of Social Security and Medicare. If we want to see more spending in these areas then we will have to raise non-Social Security and Medicare taxes. This means income taxes, financial speculation taxes or other forms of revenue. It doesn't make sense to blame the mail order business.

Finally, the idea that Ryan and Romney have some new plan to "fix" Medicare, while President Obama has nothing turns reality on its head. The new Ryan plan is a variation on past efforts to include private insurers in the Medicare program. The past programs had names like Medicare Advantage (Bush II vintage) and Medicare Plus Choice (Gingrich vintage). These experiments raised costs. These experiments raised costs. (Sorry for the repetition, but if Brooks is reading it is probably necessary.) The problem is that private insurers have higher costs than the public program. And, there will naturally be higher administrative costs associated with shuffling people back and forth between programs.

It is also worth noting that the prior versions of Ryan's Medicare plan gave people a voucher which the Congressional Budget Office concluded would be grossly inadequate to pay for Medicare equivalent policies. Brooks might consider it unfair to go back to the plan that Ryan put forward back when he was just a young man in 2011, but it might give some indication of how he views Medicare.

Finally, Brooks apparently has not heard about the Affordable Care Act, which reduced the projected shortfall in Medicare by two-thirds. In 2009 the shortfall was projected at 3.88 percent of covered payroll. That's down to 1.35 percent of covered payroll in the 2012 report. Of course that is not yet balanced, but that is more progress in controlling costs than anyone else has done. (If policy debates were not dominated by protectionists, then we could save huge amounts of money by allowing people to take advantage of more efficient health care systems in other countries.)

Anyhow, Brooks has once again reversed the basic facts. President Obama has taken important first steps in restraining Medicare costs. His preferred ticket of Romney and Ryan want us to try again an experiment from the Gingrich and Bush days which has already failed twice. It's not a very compelling case, but I suppose he is ahead of Niall Ferguson.

Comments (6)Add Comment
written by bmz, August 21, 2012 7:36
Superb! I would say no more, except the comment form said that my comment was too short.

A New Winner Take All From David Brooks: Brick and Mortar Corner Stores
written by Last Mover, August 21, 2012 8:19
It doesn't make sense to blame the mail order business.

Oh contraire. Congress is busily putting the US Post Office out of business for the benefit of UPS and Fed Ex. In no time at all that charge for a first class postage letter will start to look like the charge for an MRI scan from the hospital and the corner store will revert back to brick and mortar transactions only in short order.

A la Brooks, that's the way capitalism works. Once free of the crippling government entitlement chains of taxes, consumers will once again be free to pay more to get more from the winners who take all.

Giving up mail order as a loser for a winner like brick and mortar is just one more sign of how free markets are advanced under capitalism and vice versa.
In a Perfect World
written by coberly, August 21, 2012 9:28
I wonder if Dean will get invited on News Hour to explain all this to Brooks.
Medicare Solvency Not So Certain?
written by Mike, August 21, 2012 10:52
Dean, I appreciate the fact you know so many things I don't, and you provide an important sanity check to things I'm reading elsewhere. I come here immediately after every David Brooks column. I find your site essential. Still, I took a quick look at the Medicare report you linked above, and found the trustees aren't necessarily convinced the Affordable Care Act will result in the improvement to Medicare Solvency that you imply. From the report:

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, is another, and even larger, source of policy-related uncertainty. This legislation, referred to collectively as the “Affordable Care Act” or ACA, contains roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving certain benefits, combating fraud and abuse, and initiating a major program of research and development to identify alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and reduce its costs to Medicare. The Board
assumes that the various cost-reduction measures—the most important of which are the reductions in the payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity—will occur as the Affordable Care Act requires. The Trustees believe that this outcome, while plausible, will depend on the achievement of unprecedented improvements in health care provider productivity. If the health sector could not transition to more efficient models of care delivery and achieve productivity increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial insurers continued to follow the same negotiated process used to date, then the availability and quality of health care received by Medicare beneficiaries relative to that received by those with private health insurance would fall over time, generating pressure to modify Medicare’s payment rates.
Given these uncertainties, future Medicare costs could be substantially larger than shown in the Trustees’ current-law projection.
"Entitlement" word
written by JohnT, August 21, 2012 11:39
"Entitlement" is used as a pejorative, as well as a term in punditspeak.
written by Joe, August 21, 2012 6:51
Of course, the federal government isn't revenue constrained. A growing economy with a growing population needs more money, the deficit adds that money. Spending at the federal level, on average, should be more than tax revenue. Sectoral balances, this should be obvious.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.