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Home Publications Blogs Beat the Press Has NPR Joined Peter Peterson's Crusade Against Social Security and Medicare?

Has NPR Joined Peter Peterson's Crusade Against Social Security and Medicare?

Wednesday, 06 March 2013 05:30

The most striking feature of the U.S. economy over the last three decades has been the upward redistribution of income. The top 1.0 percent of households has managed to pocket the vast majority of gains over this period. That is a sharp contrast with the three decades immediately following World War II when the benefits of much more rapid growth were broadly shared.

This pattern of growth might lead people to question the policies that have led to this upward redistribution (e.g. trade policy, labor policy, monetary policy, and anti-trust policy). In order to prevent such questioning and to further the process of upward redistribution many wealthy people have sought to focus public attention on programs that benefit the middle class and/or poor.

Peter Peterson, the Wall Street investment banker, has been most visible in this effort, committing over $1 billion of his fortune for this purpose. Recently he enlisted a group of CEOs in his organization, Fix the Debt, which quite explicitly hopes to divert concerns over income inequality into concerns over generational inequality. It argues that programs like Social Security and Medicare, whose direct beneficiaries are disproportionately elderly, are taking resources from the young.

It is easy to show the absurdity of this position. The amount of money that the young stand to lose from the upward redistribution of income is an order of magnitude larger than whatever hit to their after-tax income they might face due to the continuing drop in the ratio of workers to retirees. Also, older people generally have families. This means that when we cut the Social Security or Medicare benefits of middle and lower income beneficiaries, we are often creating a gap that will be filled from the income of their children.

Nonetheless, when you have a billion dollars to throw around, you will have plenty of people willing to argue absurd positions. Therefore, it is not surprising to see the Fix the Debt crew and various other Peterson derivative organizations pushing the line about generational conflict, but what is NPR's excuse?

It ran a piece under the headline "Old Triumph Over Young in Federal Spending and Sequester Makes It Worse." While the piece does include comments from supporters of Social Security and Medicare, the basic framing of the piece is just wrong. It tells listeners:

"But while it's true that cutting a dollar in Social Security won't send that dollar straight to the Head Start account, such programs are inevitably competing at a time of limited federal resources."

Is that a fact? This statement is asserting that the amount of federal resources is fixed regardless of what we do with the money. In other words, the idea is that the money we get from Social Security and Medicare taxes is independent of what we pay out for these programs.

That could be true, but that is a very strong assertion. Would we still be able to take 12.4 percent out of workers' paychecks for Social Security (combining employer and employees' contributions) even if we shut down Social Security altogether? My guess is no, but NPR told listeners that the amount of money we collect for Social Security and Medicare is fixed regardless of what we do with it.

Of course, instead of casting the old against the young, NPR could have, with at least as much accuracy, said that "Rich Triumph Over Young in Federal Spending and Sequester Makes It Worse." After all, the government pays out more than 1.0 percent of GDP in interest on its debt each year. This money goes disproportionately to the wealthy. Also, no one is proposing to cut interest payments in the sequester.

Interest payments are the most rapidly rising component of federal spending. CBO projects that interest payments will rise to 3.0 percent of GDP by 2023. The increase is even larger if we deduct the money refunded by the Fed from the interest earnings on the bonds it holds. The Fed's refunds are projected to fall from more than 0.5 percent of GDP in 2013 to just 0.2 percent of GDP in 2023, causing the net interest burden to rise from 0.5 percent of GDP at present to 2.8 percent of GDP in 2023.

Readers will rightly point out that rich people would not lend money to the government, or at least not at the same interest rate, if the government did not honor its interest obligations. This is undoubtedly true. But in the same vein, voters are likely to be less supportive of payroll taxes and workers may be more inclined to evade them, if they do not feel the benefits from these programs are worth the cost.

NPR has implicitly assumed that the income for these programs will not be affected by whether the government uses the money for these programs. As a practical matter, using standard discount rates, current retirees are projected to get somewhat less in Social Security benefits than what they paid in. Medicare is projected to pay out somewhat more than what was collected in designated taxes, but this is because of the high prices that the United States pays providers like doctors, drug companies and medical supply companies. If providers received compensation comparable to what their counterparts receive in other wealthy countries than the discounted value of Medicare benefits would be close to what is paid into the program in designated taxes

One other point that is worth making in terms of the potential to cut these programs: The Fix the Debt crew and their allies repeatedly talk about cutting benefits going to affluent elderly. This is basically a joke because there are very few elderly that would fit conventional definitions of "affluent." When it came to tax increases, the bar was set at $400k, an income level that would likely be exceeded by just 0.2-0.3 percent of Social Security or Medicare beneficiaries.

A small number of very rich people have a hugely disproportionate share of income, which means that we can raise a substantial amount of money by taxing them. By contrast, the benefits of the very wealthy are pretty much the same as the benefits for everyone else. (Their Social Security benefits will likely be somewhat larger than the median, but since the benefit will be subject to income tax, most of this difference will be eliminated on after-tax basis.) This means that if the affluent are 0.2-0.3 percent of beneficiaries, then we can only hope to save 0.2-0.3 percent of spending on these programs by cutting their benefits.

In order to save substantial amounts of money on Medicare and Social Security it would be necessary to cut benefits for people with incomes in the range of $50k-$60k, levels that are very much middle class by normal standards.

Comments (11)Add Comment
Incentives matter
written by bakho, March 06, 2013 6:47
NPR is no longer funded by the public. NPR must get advertising revenue the same as any commercial station. This means they must suck up to business interests.
In addition, NPR has gone from a model of breaking in new reporters to hiring Top Dollar pundits that grace the airwaves of Corporate Media. NPR ALWAYS has had programming directed toward monied business interests including shows about money and finance. To keep the business interests on board with their "donations/ads" NPR must air their opinions. NPR does not do a good job of separating fact from opinion. The listener must know something about the pundit and their bias to be able to weigh the quality of the information. NPR has a problem with too many high-pay, low-quality pundits.
Why Intergenerational War is Necessary: NPR Drinks the Kool Aid
written by Last Mover, March 06, 2013 7:29
Terrorism has lost its punch as first place fearmonger of American manipulation. Foreign wars have lost their triumphalist freedom liberation hearts-and-minds pizzaz. Just drone 'em. Climate change remains too remote from everyday life to matter. All have given way to economic issues.

Next up, intergenerational war. Now there's a story even increasingly dumbed down tiny minds on NPR can wrap themselves around, the perfect news story to fill void. So nicely packaged with neat them-or-us contrasts. He said, she said, they said, all framed tightly within a broader economic context not to be questioned.

Everyone knows the earth is flat. Everyone knows intergenerational war is coming. This has been established with the kool aid. The only matter left is the details. Who's winning in this war? Who's losing?

NPR. We frame. You decide.
written by Kat, March 06, 2013 8:26
This post is rather serendipitous because I was thinking about the friends that I have that believe NPR is the last word in, well, everything. I know that they believe the "skills" explanation for income inequality. They are less likely to buy into the generational warfare argument, but I can see minds being changed once they've listened to enough "reasonable" arguments from this beacon of "liberal" reporting.
So, what does it look like when we share the gains of productivity? In what ways are this best accomplished? What is the simplest way of putting this?
I would appreciate hearing from anyone that have some simple soundbites that I could use.
it's not just NPR
written by Jennifer, March 06, 2013 8:29
NPR is the mainstream press basically, with an occasional toss-out to liberals and periodic displays honesty. It's absolutely true it's gone more in a mainstream direction over the last 10 years or so as its explicitly courted corporate donors, not unlike PBS. But the real problem is the idea of old people stealing from the young in terms of money allocated to government programs is a regular story across the media now. There is an incredible lack of discussion of any systemic problems--and therefore any discussion of potential solutions--that have contributed to this redistribution of income to the 1%.
written by Kat, March 06, 2013 8:50
Umm, I hate to do this. I'm really not a pedant, but just wanted to say subject/verb agreement is not quite as challenging for me as my previous post would imply.
written by Jennifer, March 06, 2013 10:30
@kat agreed, for most "liberals" if it is plausibly stated enough on NPR people begin to buy it. It terms of talking points there are a few simple things.

1) We can simply demand that people get paid--the productivity argument gets wonky but living wage campaigns (usually higher then minimum wage although not as high as if tied to productively) are ongoing and should be fully supported. It's a very simple concept--shouldn't people be able to support themselves? (In addition there is the arguement if they can't they simple take more from the public sector in services.)

2) As often pointed out by Dean older people are supposed to have more assets-by 60 most people have a house and a least a little savings, whereas people out of college a few years even in a world where college tuition was reasonable (which it is not and needs to addressed aggressively) are not going to have much money. That's expected, they are just starting out.

3) Both these problems can be solved by increasing employment. If they ask about austerity measures ask them how Europe is doing. Although attempts to raid Social Security and Medicare have been ongoing they have really gained traction in just the past few years, surely because of the poor economy. If post-college graduates had a good job market to get into, even with high debt, nobody would be playing the old versus young story. Although I think there is evidence that most post-graduates get this that doesn't mean they aren't angry with what they have, as they should be.
how does means testing SS and medicare harm the poor? why not get it right..., Low-rated comment [Show]
written by PeonInChief, March 06, 2013 11:36

For the boomer generation, SS is not a pay go plan. The trust fund accumulated a lot of money that was then lent to the federal government. The federal government didn't have to raise other taxes to fund the military etc. Now the boomers, who were told that we had to pre-fund our retirement because we were so many, has come to collect that money. And, guess what, the people who avoided higher taxes for all these years, don't want to pay the money back. Whatever funding sources might be appropriate in future, it's irrelevant to the boomers, who already paid into the system.
written by PeonInChief, March 06, 2013 11:40
God, subject-verb agreement is off for everyone today. I meant boomers...have...

peon...funding source is entirely optional
written by pete, March 06, 2013 1:54
Of course, pay SS to those getting it and are counting on it without recourse. That isn't the issue. But how to write those checks...how to fund SS payments. When the fund cashes in its bonds with the Treasury, the Treasury simply sells a bond to somebody else, like China or Ben Bernanke to collect the necessary funds. My point was that additional funding for the govt today should be optimal, and that payroll taxes are distortionary, and the 12.4% flat part hits hardest on the poor. These should be eliminated and replaced with more efficient taxes such as on carbon which does double duty. That's more or less Econ 101 in a nutshell.
Payroll taxes are regressive
written by David, March 06, 2013 8:38
Gotta agree with Pete on that. Flat rates hit the lowest incomes the hardest. If minimum wages aren't increasing, why not eliminate payroll taxes on the lowest incomes?

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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.