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Home Publications Blogs Beat the Press NYT on Future of Government Safety Net, Misses Growth and Health Care Stories

NYT on Future of Government Safety Net, Misses Growth and Health Care Stories

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Sunday, 12 February 2012 08:20

The NYT had a thoughtful piece on the public's greater reliance on Social Security, Medicare and other benefits. While the piece provides many useful insights into the increasing importance of these programs in people's lives and their attitudes toward them, it does miss a few key points.

First, it implies that the growth of government programs, rather than the economic downturn are the main factor behind the current deficit:

"Politicians have expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt."

In fact, the country would be facing very small deficits at present had it not been for the recession. Part of the rise in the deficit in the last four years has been due to the expansion of unemployment benefits, food stamps and other government programs, but this was a response to the recession, not a sudden urge on the part of politicians to increase the generosity and scope of these programs.

A second point that deserved more emphasis is the extent to which the projected budget problems in future years are the result of a broken health care system. The United States already spends more than twice as much per person for its health care as do people in other wealthy countries with little obvious benefit in outcomes. This gap is projected to grow rapidly in the decades ahead. If U.S. health care costs were in line with costs in other countries then the country would be looking at long-term surpluses, not deficits.

A third factor that provides an important backdrop to this discussion is the path of wage growth. The people interviewed for this piece expressed concern for their children and grandchildren's living standards based on the possibility that they would face higher taxes. However, the extent to which taxes impose a burden depends hugely on workers' before-tax income.

If workers get their share of projected productivity growth, then real wages will rise by roughly 1.3 percent a year, even assuming a higher portion of compensation going to pay health care benefits. This growth rate implies that wages will be nearly 40 percent higher after 25 years, roughly a generation. This would mean that if most workers got their share of productivity gains, then after-tax wages would be far higher for the next generation than for current workers even if the tax rate they paid increased substantially. 

This brings home the point that the real problem faced by the people interviewed for this piece and elsewhere in the country is that they have not been sharing in the gains of economic growth. If the current policies that enforce this pattern of income distribution persist, then workers in the future will find their taxes to be a serious burden, however the core problem is the set of polices (e.g. trade, Fed policy, patent policy etc.) that lead to an upward redistribution of income, not taxes.

Comments (5)Add Comment
Risk is Not a Four Letter Word, Low-rated comment [Show]
...
written by fuller schmidt, February 12, 2012 11:57
The article caused me to wonder if hypocrisy hardwires in the brain and becomes the hard-to-escape norm.
what about war spending?
written by Brerr, February 12, 2012 5:54
Dean, how come you always give a pass to the Pentagon? Over the last 10 years we've seen an unprecedented expansion in military spending.

I recently was reading Chalmers Johnson's book Blowback, and he comments (before 9/11) on how absurd it was that the White House was, at the time, projecting defends budgets of $250 billion 10 years into the future. Today, we spend nearly $800 billion per year, an enormous waste of money -- engaging in nation building in Afghanistan, and fighting terrorism with military might (which is not an effective solution because you have to continue spending huge amounts each year to keep the deterrant up; policing terrorism is a much more cost effective solution).

If people want to know where the deficits are coming from today, enormous spending on pointless wars is a huge part of the story.
...
written by Sam Adenbaum, February 12, 2012 9:16
There are two facets of this article that struck me.

First it states, "When pressed to choose between paying more and taking less, many people interviewed here hemmed and hawed and said they could not decide. Some were reduced to tears." I don't want to belittle any of these people but I do not understand why when confronted with the inconsistency of their worldview, they cannot adjust their views to the reality of their own situations.

Second, there is a constant refrain voiced against raising taxes. But nowhere in the debate on taxes is there a discussion of raising taxes for people earning $50,000 per year or less. The discussion is about trying to reverse the inequality fostered by two to three decades of lower tax rates on the upper income brackets.
Mostly rising health care costs
written by Greg, February 14, 2012 10:54
Your second point on health care costs is buried, but it really is worth emphasizing. This all comes down to rising health care costs.

Rising health care costs have raised costs in general, for both private and public health insurance. Increased spending on Medicare and Medicaid (and private health insurance) are a symptom. The core problem causing these federal deficits (as well as state deficits and much higher costs for employers) is growth of health care costs. It all is coming from the same core issue, rising health care costs.

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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.

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