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Home Publications Blogs Beat the Press Robert Samuelson Underestimates Dependence on the Government

Robert Samuelson Underestimates Dependence on the Government

Monday, 11 April 2011 06:12

In a column complaining that too many people are dependent on the government, Robert Samuelson badly underestimates how many people are dependent on the government. He failed to take note of the fact that nearly every person in the country is dependent on the U.S. Postal Service to deliver its mail.

Of course it would be silly to claim that people who use the Postal Service for some of their mail are dependent on the government, but much of Samuelson's column falls victim to the same sort of silliness. For example, he wants to say that Social Security beneficiaries are dependent on the government. The problem with this story is that these beneficiaries paid taxes during their working lifetime that cover the cost of their benefits.

Social Security is a retirement program that is run through the government because the government provides the service far more efficiently than the private sector. The administrative costs of the retirement portion of the Social Security program are equal to about 0.5 percent of the benefits paid out each year. By contrast, the administrative costs of privatized programs, like the one in Chile that is often held up as a model, are in the neighborhood of 15 percent of the benefits paid out. Why is it a problem that we choose to run our retirement system in the most efficient possible way?

The same story applies to Medicare. The Ryan plan for privatizing Medicare, which Samuelson smiles upon as a step forward, would add more than $20 trillion (more than $60,000 per person) to the cost of buying Medicare equivalent policies over the program's 75-year planning horizon. This $20 trillion is not the savings to the government from paying less for retirees' Medicare. This is the pure waste associated with establishing a more inefficient system of health care.

While Samuelson makes his usual point about a broken and bloated government, the facts tell a different story. The country has a broken health care system: full stop. If the United States paid the same amount per person for health care as people in any other wealthy country we would be looking at huge budget surpluses, not deficits.

Comments (21)Add Comment
Give Me Liberty or Give Me Death of High Price and Inefficiency
written by izzatzo, April 11, 2011 7:13
This $20 trillion is not the savings to the government from paying less for retirees' Medicare. This is the pure waste associated with establishing a more inefficent system of health care.

Like Ryan, Samuelson understands the true value of liberty which has no price. To be free of government oppression is like being free of the death panels in hospitals that kill 100k Americans a year with secondary infections they didn't have going in.

Any economist knows that scarcity prevents having both liberty of health care and death of infections simultaneously - it's one or the other so take your choice.

Either march into those hospitals ready to make the ultimate sacrifice with a liberty voucher or stay out of them altogether with no health care at all, but you can't have both under Ryan's Patrick Henry Health Care.

Stupid liberals.
Dean gets the most important fact about Social Security wrong.
written by AndrewDover, April 11, 2011 7:43
Dean wrote:
"these beneficiaries paid taxes during their working lifetime that cover the cost of their benefits."

which is just not true, as the official Social Security Trustees report shows:

Table IV.B7.—Present Values of OASDI Cost Less Tax Revenue and Unfunded Obligations for Program Participants:

Present value of future cost less future taxes for current participants?= $20.0 trillion.

Less current trust fund of $2.5 trillion.

Equals unfunded obligation for past and current participants? of $ 17.4 trillion.

If you don't trust their calculations, simply divide 2.5 trillion by the 54 million beneficiaries as of December 31, 2010.

You get $46,000 which is less than 4 years of benefits at $12,000 per year. In other words, the trust fund does not have enough bonds to pay benefits for those currently receiving benefits. Hence those currently receiving benefits as a group did not cover the cost of their benefits. Hence Dean's claim is wrong.
written by liberal, April 11, 2011 8:15
AndrewDover wrote,
Equals unfunded obligation for past and current participants? of $ 17.4 trillion.

That's past and current participants, apparently going all the way back to 1935. E.g. Table IV.B.6 refers to "Unfunded obligation for 1935 through the infinite horizon..."

I don't think citing a number which includes participants who obviously took out more than they paid in that long ago is an honest rebuttal to Dean's point.
Current Retirees Paid for Their Benefits
written by Dean, April 11, 2011 9:00

you could have an argument if you were referring to the people who retired 30 or 40 years ago, but the cohorts who have retired in the last two decades have on average paid for their benefits. And certainly this is true of the cohorts going forward. They will have paid the higher 12.4 percent tax during their whole working life.

We can argue about whether we were too generous to the generations that came before us, but there is not much that we can do about it now.
Look At What We Have To Pay...
written by Jerry Jones, April 11, 2011 9:24
The 2007 OECD reported listed the world's countries' health care cost as a percentage of GDP as follows:

Japan, 8%
United Kingdom, 8.3%
Germany, 10.7%
Switzerland, 11.6%
United States, 15.3%

Something seems to be terribly, terribly expensive about the United States health care costs; I am very, very suspicious of our corporations and their ability to extract (scam?) this amount of money from citizens living in the United States... especially when the actual results of our health care are being reported as inferior to those of the other industrialized nations.

Reporter T. R. Reid did an interesting piece on PBS that showed how much American citizens are being soaked over the amount being paid by citizens in other countries.

I smell a rat.
written by PeonInChief, April 11, 2011 9:38
Because Social Security pays out money from current taxes to current retirees, it's not a savings plan. Boomers paid extra into the fund because it was believed that there would be too many of us to support with the taxes paid by current workers. The people who may have gotten substantially more than they paid in were those who retired in the 1940s. Great-grandma is long gone now.
written by AndrewDover, April 11, 2011 10:35
Clearly we are moving from a net loss per person to a net gain per person situation. We are differing on exactly how far along we are in the process.

I'm always happy to reverse my opinion if given the evidence. But I have nothing specific to examine to believe that current beneficiaries did on average cover the cost of their benefits.

shows the diference between 1980 retirees and 2010. Unfortunately it lacks 1990 and 2000.

Liberal: I refered to table B.7, not B.6. The amount of SS benefits before 1960 was trivial, not over 10 billion a year. Before 1980, less than 100 billion a year.

The 12.4 employee+employer rate started in 1990 which is only two decades ago.

So the average person who retired in the last 2 decades would have paid 12.4% in only 10 out of 35 years.

The trustees report says:

"The present value of future cost less future taxes over the next 100 years for all current participants (individuals who attain age 15 or older in 2010) equals $20.0 trillion."

Are you saying that current participants include dead people?
Health Care System is NOT Broken
written by Paul, April 11, 2011 11:07
for those mega corporations that are feeding at the government trough known as Medicare and Medicaid. Those thieves are doing better than their counterparts in the defense industry.

Ryan's plan will fail because it would cut off the health care industry.
written by kharris, April 11, 2011 11:31
Eh, Andrew? You understand that using math to show up the other guy requires that you know how the math works, and how the program works, right? There is not guarantee that future benefit levels will be whatever today's formula says they will be. Social Security's claim on the general fund extends only to repayment of principle and interest on money borrowed from SS. Social Security payments are limited to Social Security's resources, and so should scheduled outlays exceed resources, payments fall. Dean's claim cannot be wrong, based entirely on the math you show. He may be wrong for other reasons, but math is not enough.
You keep saying that
written by Bill H, April 11, 2011 11:50
health care costs similar to other countries would result in "huge budget surpluses," but you never document that, and I just can't make the numbers come out.

As best I can find on short notice, SSA and "Social Insurance" taxes took in $865 billion in 2010, while Medicare, Medicaid and Social Security paid out $1.494 trillion. That is a negative of $629 billion and at least some small part of that negative was Social Security due to the economy. Our current deficit is $1.7 trillion.

Total paid out for Medicare and Medicaid was $793 billion, so if let's be conservative and cut that by two thirds and reduce it to $262 billion, that takes the "social deficit" down only to $98 billion, and still leaves our overall deficit at $1.169 trillion.
SS Trustees Present Participants' Liabilities
written by Dean, April 11, 2011 1:28

The SS trustees calculations of "present value of future cost less future taxes over the next 100 years for all current participants" is literally what it says. It takes all current workers and retirees and says how much will these people get in benefits over the rest of their lives minus how much they will pay in taxes. It should show a big shortfall since many of these people will pay zero in taxes in the future and others will just pay taxes for a few years while counting on a full retirement to collect benefits.

If you want a calculation of returns by birth cohort, Gene Steurele at Urban published a book a few years back (titled something like "Retooling SS for the 21 Century) that has tables by earner type and age cohort. Single high income earners first sank below the 2.0 percent return that he and other view as break even around 1990 (year reaching age 65). By 2000, I believe that middle income earners had also fallen below the break even point. I think that low-income earners may always stay somewhat above it, as do some couple combinations.

You're right about the full 1983 tax increase not going into effect until 1990, however workers were paying rates that were close to current levels from the mid-80s onward, which is why those retiring now would be at or below the break even point.
It's true,
written by S.D. Jeffries, April 11, 2011 3:28
as Dean claims, that "If the United States paid the same amount per person for health care as people in any other wealthy country we would be looking at huge budget surpluses, not deficits."

Also, if Bush's tax cuts, all of them, has not been extended at the end of last year, we would not have a deficit. But is Ryan suggesting something so simple as letting those cuts expire? Of course not - he and the rest of the Republicans just want to fight over the size of government.

SS is a welfare program
written by Floccina, April 11, 2011 3:47
SS is a welfare program to provide income for people who do not have enough savings, have not built good enough relationships and are not health enough to work. It should look more like a welfare program we should eliminate the FICA and raise the income tax tax and give everyone the same amount in retirement.
Dean is closer than I thought
written by AndrewDover, April 11, 2011 4:03
My estimate is about 49% of the current SS beneficiaries paid in sufficient taxes for their estimated benefits.

You have to remember that most (Over 80%) people do get married at some point. And a good percentage of those marriages only have one income. "from 1970 to 1993, the proportion of dual-earner couples increased from 39 percent
to 61 percent of all married couples."

So there is at least a .4 * .8 = 32% weighting on single earner couples who get the best deal from Social Security.

From the SS cohort data at:

Considering those who retired from 1985-2008, these groups would have paid in less than their payable benefits:

All with Low & Very Low income, except single men retiring after 2002, and single women retiring after 2008.

All medium income, one earner couples.
All medium income that retired before 1990.

All High females that retired before 1990
All High Dual Income couples retired before 1990
All High income, one earner couples.

All maximum income, one earner couples
that retired before 2005.

In order for 50% or less to have paid in less than their payable benefits, you would need all 30% with high or maximum incomes, plus 20% of
the 28% with medium incomes. At least 1/3 of medium incomes are single income couples so the maximum from middle is 19%, which only gives 49%.

Another few percent are removed due to the fact that 10% of the Social Security population is 85 or older, and thus retired before 1990.

But it is close enough that I think I owe Dean an apology.

kharris: Most current beneficiaries will be dead around 2040 when the trust fund empties, therefore they won't have payable benefits substantially different than scheduled benefits.

p.s. I'm not sure about the 100 year trustee calculation. There will also be people who pay taxes until the 100 year cut off, and record no benefits.
written by jethro, April 11, 2011 8:29
Dean can rail on and on about healthcare, but until people take responsibility for their health, the costs will continue to rise. 33% of USA population is obese, 60% are overweight, childhood diabetes is rising at a historic level. Government is in debt up to its eyeballs, and all we get is republican bashing instead of a plan. Give us your plan Dean, let me compare it to Ryans'......
There are Many Ways to Save Money on Health Care
written by Dean, April 11, 2011 9:18

take a look at the health care section of our website http://www.cepr.net/index.php/...ew_issue/, there are lots real proposals there. I'm a big fan of international competition. We can use it improve our health care system, just as international competition improved our auto industry.


thanks for checking the numbers. I did overstate the case.
written by Fed Up, April 11, 2011 10:54
"I'm a big fan of international competition."

Let's apply that to the "economics profession" (with profession being extremely loose) first. When economists (including the person who wrote that) start making about $10,000 per year with no benefits and have a positive price inflation target and/or a positive NGDP target, let's see how they like it.
These things put me in apoplexy
written by Eat The Babies!, April 12, 2011 6:49
You know why I think the politicians hate Social Security so much? Because they feel all the pressure of the debt their predecessors created by spending the social security savings account and turning the spending into Treasuries.
It is a real bummer.

But at the end of the day that .5% versus 15% factoid is really the beginning and end of this story. It's just a better program than anything the private sector could deliver. The market doesn't make sense for everything.
written by liberal, April 12, 2011 7:19
AndrewDover wrote,
I refered to table B.7, not B.6.

So? The same caveat I mentioned that I cited from Table B.6 applies to B.7.
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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.