CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press If Would Have Been Worth Pointing Out That Republican Deficit Hawks Are Wrong

If Would Have Been Worth Pointing Out That Republican Deficit Hawks Are Wrong

Print
Friday, 13 December 2013 05:26

There is a bizarre cult in the Washington elite that insists that Social Security, Medicare, and Medicaid must be cut for our own good. Unfortunately, the NYT seems to be part of this cult. 

In its piece on the House of Representatives vote to approve the budget compromise worked out this week, it told readers:

"Some conservatives feel betrayed, as they often have since the Republicans took control of the House in 2011. Representative Jim Jordan, Republican of Ohio, said the House Republican conference agreed in the spring that spending levels exacted by the sequestration cuts would not change unless Congress and the White House could strike an accord to control the long-term causes of the rising costs of the federal debt, Medicare, Medicaid and Social Security."

It would have been useful to point out that Mr. Jones is wrong. The projected cost of Medicare and Medicaid has fallen sharply over the last five years due to slower projected growth in health care costs. The Congressional Budget Office (CBO) has already lowered projected spending on Medicare and Medicaid for 2020 by 15 percent, which is more than 1 percent of GDP (@ $170 billion in today's economy). If CBO were to adjust its budget projections fully in accord with the slowdown in spending over the last five years the reduction in projected spending would be even larger.

The slowdown in health care costs has led to sharper reductions in spending that almost any politician likely would have advocated. This means that when someone like Mr. Jones complains about the cost of these programs they are either uninformed about current budget projections or they want to make cuts in these programs apart from any concern about the budget.

It is also worth pointing out that Social Security cannot be a driver of the deficit. Under the law, the program can only spend money from its designated trust fund. If this fund is exhausted then benefits would have to be adjusted downward to correspond to Social Security tax revenue. There is no way that Social Security can contribute to the long-term deficit unless Congress votes to change the law as it now stands.

Comments (6)Add Comment
The Three Third Rails of Communism and Fascism in America
written by Last Mover, December 13, 2013 5:17

Exactly. The sequester cuts were supposed be used as leverage, to hold hostage and cut the budgets of the untouchable third rails of SS, Medicare and Medicaid instead.

Intead, Commie Paul Ryan agreed to a deal that reduced the sequester cuts themselves, half going to DOD.

Now the Neo-fascists are whining they don't have any leverage anymore.

Like you know, this is an example of why Rush Limbaugh says the GOP would support Obamacare even if the GOP controlled everything. They can't win for losing. Even cutting the budget of the DOD doesn't work anymore.

It's a good thing the Commies and Neo-fascists within the GOP are holding each other in check, because the Democrats sure as hell aren't going to raise a finger to hold them in check.
I had an email exchange with reporter Jonathan Weisman yesterday ...
written by Lex, December 13, 2013 8:51
... on precisely that paragraph, specifically the part in which he calls Social Security a major driver of the deficit.

His explanation was that because the government has borrowed from the Social Security Trust Fund and how has to pay it back, Social Security is driving the deficit. I pointed out that were that the case, then to be contextually accurate would also would have to include investment banks, commercial banks, institutional investors and individuals -- basically anyone who holds U.S. bonds -- as "major drivers of the deficit," and that that argument, while silly, at least would be consistent and contextually complete.

His response: "Whatever."
...
written by skeptonomist, December 13, 2013 11:38
Social security can be a driver of "the deficit" because the general fund essentially owes SS about $2.7T. This is money owed to boomers and others who have paid into the system since around 1983. This excess in the Trust Fund should be paid out by the time boomers are all gone, roughly 2050. This means either that income tax rates (not payroll tax rates but including income on interest, dividends and capital gains) must be increased over the rates in effect since 1983, or that deficits as usually reported (in terms of the "unified" or "public" budget) must increase. In the latter case the debt owed to SS would essentially be rolled over into "public" debt. This by the way would not increase gross debt.

High-income people are opposed to increasing tax rates on themselves or to increasing public debt, so they want to dishonor SS obligations. Claiming that deficits are not involved is really hiding the class-war aspect of all this - if the Trust Fund is not paid out, thereby reducing deficits, there will be a transfer from low- to high-income people. I think it would be much more useful to emphasize that the money has been paid into the system through payroll taxes and really belongs to boomers - it is owed to them and not "government". High-income people got a break in lower income taxes through the years the Trust Fund was accumulating and now it's time for them to pay up.
...
written by fuller schmidt, December 13, 2013 1:42
I took it that you meant Mr. Jordan not Mr. Jones. Otherwise who is Mr. Jones - unless my eyes are going again?
...
written by Bruce Webb, December 13, 2013 8:04
Well one problem is that 'deficit' is a term of art for CBO and OMB that only has some overlap with related concepts like 'total public debt' 'debt held by the public' and 'cash flow'.

Currently Social Security is in surplus. And also cash flow negative.

Also Social Security surpluses add to Total Public Debt.

Plus if Social Security is 'fixed' and certainly if it is 'enhanced' as Senator Warren and most supporters are on record as supporting through such measures as lifting the cap, the arithmetic result is that the current Trust Fund balance of $2.8 trillion NEVER GETS REPAID ON NET. An odd result to be sure but part and parcel of how Social Security measures 'solvency'.

Steve Goss, the current Chief Actuary (number cruncher) of SSA wrote an article for the 75th Anniversary Edition of the Social Security Bulletin laying all this out in detail, and I suggest Googling. But the upshot is that a Social Security system that had achieved his stated goal of 'Sustainable Solvency' would in EVERY year be: 1) in surplus, 2) adding to Public Debt, and 3) cash flow negative. Because those numbers don't move together in the way that common sense would insist they must. They just don't.

Social Security can and does 'contribute' to both 'deficit' and 'debt'. But paradoxically not in ways that make it productive or even accurate to say 'Social Security drives the deficit'. Because as we speak and using the topline number CBO uses for 'deficit' its effect is to drive it DOWN. Even though SS is cash flow negative. And yet still ADDING to its assets.

It makes sense on its own terms. But little sense outside the fairly arcane world of federal deficit reporting.
...
written by Bruce Webb, December 13, 2013 8:24
Skeptonomist: "Social security can be a driver of "the deficit" because the general fund essentially owes SS about $2.7T. This is money owed to boomers and others who have paid into the system since around 1983. This excess in the Trust Fund should be paid out by the time boomers are all gone, roughly 2050"

Well no. Under current law the Social Security Trustees are mandated to target a minimum level of reserve in the Trust Fund, one equal to one full year of next year's cost. Which means that the word 'excess' in relation to TF balances in 2050 means only that amount in excess of projected cost in 2051. Which if that amount is in excess of $2.8 trillion (and it is) then not only should NONE of the current TF balance be paid off on net, it is actually imcumbant on us to keep those balances on a glide path to a 2050 year end TF Ratio of 100.

The current TF Ratio is above 350. And while you might logically think that putting it on a glide path to 100 in 2050 would result in nominal decreases in the current $2.8 trillion balance it turns out not to be so.

Boomers didn't prepay their RETIREMENT. Instead they partially prepaid their retirement plans RESERVE. Real money to be sure, there were other paths considered by the 1983 Commission that would have delivered us to 2012 with lower levels of reserve/smaller TF ratios than the 350+ we have today and the near 400 that current projections will take us. There certainly was some front loading here. But it doesn't remotely add up to 'prefunding' or argue for a TF balance at any time in the future smaller than the $2.8 trillion we have today. Not under current definitions of 'Social Security Solvency'.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives