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Home Publications Blogs Beat the Press Robert Samuelson Is Upset that No One Other Than the Washington Serious People Want to Cut Social Security and Medicare

Robert Samuelson Is Upset that No One Other Than the Washington Serious People Want to Cut Social Security and Medicare

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Sunday, 02 December 2012 22:33

Robert Samuelson is angry that President Obama doesn't agree with him that Social Security and Medicare should be cut. Who does Obama think he is, disagreeing with Samuelson and the Serious People?

Just to be clear on the playing field here (Samuelson seems confused), not only does President Obama oppose cuts to these programs, his opponent Governor Romney also argued against cuts to Medicare. And polls consistently show that the vast majority of Republicans, conservatives and even self-identified Tea Party supporters also oppose cuts to Social Security and Medicare. So President Obama is defending a position that has the support of the vast majority of the American people regardless of political or ideological affiliation.

Samuelson gets a lot of other items in his piece wrong as well. When complaining about Social Security and Medicare he tells readers:

"The young will pay more and get less."

Actually, this is not true. Near retirees will have paid in to Social Security at current tax rates through almost their whole working life and will have to wait until age 67 to retire with full benefits. Younger workers will be able to anticipate longer life expectancies which means that they will likely get a slightly better return on average on their Social Security taxes. In terms of return on Medicare, if we care about outcomes, they almost certainly will do better with this program as well. Since Samuelson provides no sources, it is not clear what he thinks he is talking about.

He is also upset that:

"Supporting retirees is now the federal government’s main activity."

To people who not ideologues, this makes sense since the government can provide retirement income and health care benefits far more efficiently than the private sector. Apparently Samuelson wants to waste resources and have slower growth just so he can feel good about having a smaller government.

Samuelson then redefines "rich" telling readers that:

"The Administration on Aging reports that in 2010, 25.9 percent of households headed by someone 65 or older had incomes exceeding $75,000." Isn't that neat; when it comes to taxes we are told that $250,000 is not rich, but getting $75,000 a year is rich when we talk about people collecting the Social Security and Medicare benefits that they paid for.

On this point, Samuelson misrepresents research by Eugene Steuerle and Caleb Quakenbush, reporting that it shows an average earning couple who retired in 2010 will collect more back in Social Security and Medicare benefits than they paid in taxes to these programs. In fact, their research shows that they will collect somewhat less in Social Security benefits than they paid into the program in taxes, using a 2.0 percent real interest rate.

The research does show that this couple's Medicare benefits will on average will cost more than what they paid in taxes, but there are two important qualifications to this conclusion. First, the projections assume that health care costs rise at a far more rapid pace than they have over the last 5 years. A recent study from the Federal Reserve Board, along with other research, provides serious grounds for questioning the assumption of rapid health care cost growth.

The other important qualification is that the main reason for the high costs is not what the couple is receiving, but what health care providers are getting paid. We pay more than twice as much per person as people in other wealthy countries. This gap is assumed to grow to a ratio of 3 or 4 to 1 in these projections. It is a bit peculiar to get upset at seniors because we pay too much money to doctors and drug companies.

Finally, folks who are genuinely concerned about generational equity must remember that wages for people in their twenties are projected to be on average more than 50 percent higher than were wages for people now in their 60s. While most workers have not shared in this wage growth this is due to the enormous upward redistribution of income over the last three decades.

The amount of upward redistribution to CEOs, Wall Street types, and doctors and lawyers, swamps anything that young people might lose in paying for their parents' or grandparents' Social Security and Medicare. People who were honestly concerned about the living standard of the young would be focused on this upward redistribution and not be wasting time trying to steal away workers' Social Security and Medicare. 

Comments (9)Add Comment
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written by coberly, December 03, 2012 12:52
It is not strictly true to say that workers will get back somewhat less than they paid in "assuming a 2% real interest rate."

the average worker will get back a good deal more than he paid in... he will in fact get what he paid in plus an interest equal to the rate of inflation plus about the rate of growth in the economy... which is expected to be near 2%.

but workers who earn less than average over a life time will get the "insurance" boost designed into Social Security and get up to a 10 % real return on their "investment."

an ordinary person investing his own money is unlikely to get a 2% real return and may be lucky if he even keeps up with inflation.

that "2%" real return assumed for "present value" accounting is not a realistic number. it assumes that there are no risks, that the "investment" always pays at least 2% over inflation... this has never been true in my lifetime, though it is often true for some investors over a short time. it ignores the insurance value of Social Security, both the death and disability insurance AND the insurance against low earnings. Of course it also insures against lack of prudence (failure to save) because it is "forced" savings. But our heartier citizens think that's what 's wrong with it.
...
written by bmz, December 03, 2012 8:02
No one ever mentions the double taxation of Social Security: you pay income taxes on your contributions and income taxes on 85% of your benefits when you have an AGI over $32,000. Moreover, inasmuch as the $32,000 limit is not indexed, it has the effect of reducing the indexing of Social Security benefits.
Should expect to get more back
written by KeithOK, December 03, 2012 9:22
We should expect people to get more back than the paid into Medicare (including employees share). If we're running a system meant to break even, then contributions should equal payments plus the expenses of running the system. Since a lot of people collect nothing in benefits, dying before collecting, it shouldn't be surprising that others collect more.
...
written by skeptonomist, December 03, 2012 10:09
As far as total tax burden is concerned, demography dictates that baby boomers have paid less than those before and after them to get the same proportional benefits in SS and Medicare; this is just because there are so many more of them. What is really at issue in the SS debate is the class distribution of taxes and benefits. The 1983 reforms evened out the burden of payroll taxes and put the differential taxation into income taxes. The excess of boomer workers over the last 30 years or so has allowed income tax rates for the wealthy to be cut, while maintaining a relatively low level of "unified" budget deficits. Now that boomers are retiring and it is time for income-tax rates to be increased, high-income people who pay the bulk of income taxes want the Trust-Fund obligations to be dishonored and the SS benefits of boomer workers to be cut.
...
written by skeptonomist, December 03, 2012 10:27
Another thing that should be mentioned (and was not in either Samuelson's piece or Dean's discussion) is the huge interest of Wall Street in how the elderly are supported. Wall Street wants workers to give them part of their money throughout their working lives and get it back only on retirement. Wall Street makes a living on commissions on this kind of investment - holding and playing with other people's money (no, they don't make a living by making brilliant gambling coups at each other's expense). The SS system basically just takes worker's money and distributes it immediately to retirees, without the Wall Street profit overhead; the Trust Fund money is invested but there is virtually no overhead in that. As Atrios says, Wall Street will always be coming after the money that flows through SS.
Social Insurance Isn't An Investment Vehicle
written by Jeffrey Stewart, December 03, 2012 10:40
Mr. Samuelson is comparing apples and oranges when calculating rates of return for Social Security benefits. Social Security is social insurance. Just as one doesn't calculate rates of return on car insurance, Social Security's rate of return on taxes paid is completely irrelevant. Once one pays all of his/her taxes s/he is free to speculate in any type of retirement program or scheme s/he wants and calculate a rate of return on those funds.
Obama opposed to cutting Soc.Sec.? Huh?
written by bailey, December 03, 2012 1:25
Now I'm confused!
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written by John Emerson, December 03, 2012 3:35
"The young will pay more and get less."

This is, in fact, the most likely outcome of entitlement reform.
...
written by urban legend, December 03, 2012 3:58
The problem is that Samuelson and the Washington Post editorial staff know they are being ridiculous. They just don't care: they've staked out their ground and will defend it to the death because they -- every last one of them -- are not journalists devoted to the truth but shills.

How do we know they don't care? People like Dean and Krugman and Brad DeLong are "serious" critics whose opinions, simply because of their accomplishments, deserve to be taken seriously. Their opinions are also squarely within an analytical tradition that within our lifetimes has been considered beyond much controversy. But when is the last time Samuelson or the Washington Post editorial writers actually engaged the Krugman-Baker-DeLong critique and try to debunk it while advancing their own view? I don't think they ever have. They just ignore it, going la-lal-la I can't hear you while continuing to re-write the same commentary they've written a zillion times before.

They're too chicken to try not only because they know they don't have the analytical chops, but also because they know they are wrong and would have to do an Emily Litella moment about everything they've written during their adult lifetimes.

And that means they simply don't care. I suppose it is safe to say that their jobs depend on not caring, so it would be foolish to ever expect change. We just have to keep trying to marginalizing them. This election was a great start. If Democrats can take back a majority of the House in 2014 -- eminently doable -- people like Samuelson will deservedly be dumped on the ash-heap of economic discourse.

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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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