God Speaks to Robert Samuelson

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Monday, 19 November 2012 05:45

That is what readers of his column on the budget standoff undoubtedly concluded when they read his line:

"It’s a pity, because the outlines of the needed deal are clear."

He then lists a number of items which would not obviously be in most people's outlines, such as reduction in the top tax rate from 39.6 percent to 30.0 percent, and "sizable cuts in Social Security and Medicare." The latter might be viewed as especially surprising since an overwhelming majority of people across the political spectrum are opposed to cuts in Social Security and Medicare.

As a policy matter, with the vast majority of retirees just scraping by now, the idea of imposing further hardship would not seem to make a lot of sense. According to the Pew Research Center, the median near retiree household will not even have enough wealth to pay off their mortgage (their median wealth is just $162,000 compared to a median house price of more than $180,000).

This means that if a typical household used all of their wealth, including all their retirement accounts and selling their car, they would still have a small mortgage left over and would be entirely dependent on a Social Security check that averages just over $1,200 a month for their income. While highly touted in media outlets like the Washington Post, the number of affluent elderly (incomes over $100,000) are few and far between. Cutting their benefits would have little impact on the finances of Social Security and Medicare or the federal budget.

Given these facts, how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare? I gave my answer.