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Home Publications Blogs Beat the Press Robert Samuelson Wants to Abolish Peter Peterson's and Bill Gates' Bank Accounts

Robert Samuelson Wants to Abolish Peter Peterson's and Bill Gates' Bank Accounts

Thursday, 06 June 2013 21:44

Sorry, I misread the piece. It was the Social Security and Medicare trust funds that he wants to abolish. It would be the same thing -- destroying large amounts of wealth, just different people involved.

In the case of Peter Peterson and Bill Gates, we would be destroying the wealth of two very rich people. In the case of the Social Security and Medicare trust funds we would be destroying $3 trillion in wealth that belongs to the country's workers. Of course I should have realized off the bat that Samuelson could not be talking about destroying Peterson and Gates' bank accounts. The Post never would allow a column in the paper suggesting that we confiscate the wealth of the rich.

Okay, what is Samuelson's argument? It's a bit hard to tell.

He tells us:

"In the public mind, the trust funds suggest that Social Security and Medicare are quarantined from the rest of government. As long as the funds remain solvent, promised benefits can be paid. So policy focuses on strengthening the trust funds. Against that background, it was inevitable that the trustees’ latest reports would be cast as good news. Slower-than-expected increases in health-care costs have extended the life of the Medicare trust fund until 2026, two years later than last year’s estimate. The Social Security trust fund is projected to pay promised benefits through 2033, the same as last year. This seems comfortably distant."

Yes, this is exactly right. The trust funds are legally quarantined from the rest of the government, which is all that matters for these programs. The mind that Samuelson attributes to the public is 100 percent on the mark. So where is the problem?

Samuelson later tells us:

"Millions of Americans believe that Social Security is a stand-alone program whose spending is covered by the payroll taxes cascading into the trust fund. Many others, though fewer, think the same of Medicare."

Again, the public is exactly right about Social Security. Medicare is more complicated since Part B and Part D (the doctors' insurance and drug coverage portions of the program) are paid out of general revenue.

But Samuelson asserts the opposite:

"Here’s what we learn from table V.F1 on Page 225 of the Medicare report. In fiscal 2012, Social Security and Medicare benefits totaled $1.323 trillion. Payroll taxes, Medicare premiums and other fees came to $920 billion. On a cash-flow basis, this left a deficit of $403 billion, $243 billion for Medicare and $160 billion for Social Security. The deficit had to be covered by general revenue from the Treasury and represented 37 percent of the overall 2012 federal deficit of $1.087 trillion.

"The numbers debunk the notion that Social Security and/or Medicare don’t affect the deficit. Payroll taxes cover only some of their spending. This has long been true of Medicare; now it’s also true of Social Security. All the mumbo jumbo about trust fund balances (which are, in an accounting sense, boosted by interest credited to them by the Treasury) obscures this."

Hmmm, "mumbo jumbo?" I guess math is hard.

Okay, we are obviously over Mr. Samuelson's head here, but it really is not that difficult. As noted above Part B and Part D are designed to be paid out of general revenue. (Can't someone at the Post explain this to Samuelson?) There was also spending for both Social Security and Medicare that were financed from the interest on the government bonds that they hold. 

There is nothing obviously problematic about this, except that Samuelson wants the government to default on the bonds held by these trust funds. So from Samuelson's perspective this is bad news, but the programs are doing exactly what the law specifies. In the Robert Samuelson accounting world, if Peter Peterson cashed in $100 million of government bonds as they became due and used it to finance his Fix the Debt campaign, the government would have contributed $100 million to Fix the Debt.

Now we get to the real kicker:

"The prospect is for much more of the same. In table V.F2, which projects the outlook for Social Security and Medicare over the next 75 years, the actuaries estimate that payroll taxes, Medicare premiums and other dedicated taxes and fees will total $73.2 trillion. Unfortunately, projected spending is more than 50 percent greater at $112.8 trillion. Somehow, the gap will have to be closed by squeezing other programs, raising taxes, borrowing or cutting Social Security and Medicare benefits."

Got that? We're looking at $112.8 trillion in payments over the next 75 years, and just $73.2 trillion in taxes. That leaves a shortfall of $39.6 trillion. Are you scared?

Do you have any idea of how much $39.6 trillion is over the next 75 years is?

Okay, this is the sort of garbage that Robert Samuelson and his friends at the Post are famous for. This is about scaring people, not providing information. Yes, $39.6 trillion is a really huge number. So what? How about putting it in terms that people could understand?

If Samuelson had moved forward two pages in the Medicare trustees report he would have found another table that says that this funding gap is equal to 1.5 percent of projected GDP over this period. Odds are that most Post readers would have some sense of what 1.5 percent of GDP means. Why would Samuelson use a number that is almost meaningless to everyone who reads it when he had the percentage figure calculated right in front of him? I'll leave that one to readers to guess.

Of course 1.5 percent of future GDP is hardly trivial, but it is not the sort of expenditure that would break the bank. It is a bit less than the increase in military spending that was associated with the wars in Iraq and Afghanistan. My guess is that people would consider this a price worth paying to preserve these programs, but the best way to find out is to accurately describe the cost so that they can decide for themselves.

It is also worth noting that the costs of Medicare are excessive because we pay so much more than people in other wealthy countries for our health care. We could try to get these costs down through more trade and letting Medicare beneficiaries buy into the health care systems of other countries (splitting the savings), but Samuelson is far too ardent a protectionist to even consider this route. He just wants the programs cut. 

Well, the push for austerity may have been set back by the revelations about the Reinhart & Rogoff Excel spreadsheet error, but we can see that at the Post the Jihad against Social Security and Medicare continues unabated.

Comments (14)Add Comment
written by JSeydl, June 07, 2013 1:32
It's pretty funny that when you google Samuelson's name, a picture of Dean comes up off to the right.
Another Freudian Slip From Samuelson: Quarantine the Disease of "Takeritis"
written by Last Mover, June 07, 2013 5:55

He tells us:

"In the public mind, the trust funds suggest that Social Security and Medicare are quarantined from the rest of government. As long as the funds remain solvent, promised benefits can be paid. So policy focuses on strengthening the trust funds.

The conventional use of "quarantine" is to isolate carriers of a contagious disease from infecting others. Samuelson, like other economic illiterates on the right, is frantic that the macro picture is improving in terms of a declining deficit.

He is scrambling to come up with explanations that fulfill his original predictions, that the root cause of economic distress in the nation is still greedy out of control spending by takers who live off others on socialist programs like SS and Medicare financed with taxes and borrowing.

Even if the programs were fully funded with no deficit, he would turn his mindless wrath to privatizing them to cure more invisible economic evils drummed up in his tiny conspiratorial mind.

Never mind the economic efficiency and role of democratic voting by the majority that support SS and Medicare. Americans supporting these programs are branded by Samuelson and his 1% buddies as contaminated by a fatal economic disease known as Takeritis" and must be quarantined behind behind a wall of economic austerity to prevent them from infecting others with this fatal economic disease.
Time to Just Stop Reading Samuelson?
written by Robert Salzberg, June 07, 2013 6:20
If Samuelson is going to continue to assert that Social Security doesn't have a dedicated revenue stream and if Samuelson continues to assert that the richest country in the world can't afford a skimpy safety net, then perhaps it's a waste of time to present the obvious counter arguments/information.

After a while arguing with a fool makes you look like a fool.

Thanks Dr. Dean Baker for at least mostly giving up on David Brooks, I was really tired of reading his nonsense.
Fun activity for the kids
written by Alex Bollinger, June 07, 2013 7:32
Sometimes I like to click through the links on this site and see if I can spot the errors Prof. Baker will critique. It's like a depressing version of the Jumble.
Samuelson Doesn't Even Understand Journalism or Impartiality
written by Robert Salzberg, June 07, 2013 7:35
From Wikipedia:

"Samuelson does not vote in any elections as he believes that voting interferes with his impartiality as a journalist"
written by Bloix, June 07, 2013 8:16
Samuelson is continuing the long-term plan to loot social security that was the main subject of the 2000 election. Not to sound like Bob Somersby or anything, but you may remember Gore talking about how important it was to maintain the trust funds as a "lock box" and the press wanted to talk about his brown pants. Then Bush intentionally put the government in massive debt with the tax cuts (Surpluses are evil!-Alan Greenspan) with the clear intention so that the treasury wouldn be able to say that it couldn't make good on the bonds in the trust funds. The plan was that the government would then renege on the bonds - hey! We're the richest and most powerful country in the world and don't you forget it, but we're broke! It almost worked until the second-term privatization plan (the one that Bush was going to "spend his mandate" on) couldn't make it through Congress. But they never, ever give up, not when there's billions and billions to steal. So here's Samuelson again. It's a great scam: all that regressive FICA tax people paid for their retirement turns into ordinary income tax to fund the next land war in Asia.
written by skeptonomist, June 07, 2013 8:55
The really critical issue respecting the Trust Fund is identifying whom it is owed to. Although Samuelson, like probably most people in the country, erroneously seems to think that SS is a funded program, the Trust Fund does represent partial funding for baby boomers.

The excess money in the Trust Fund, which is supposed to reach almost $3T, is a debt which is owed baby boomers and others who have paid SS taxes since 1983, and they are supposed to get it back. That excess is supposed to be paid out by about 2045. That the projected date is 2033 is a problem, but one that could easily be fixed by extending the SS tax base.

If boomers can be made aware that this is money owed to them, not just money owed by one part of the government to another, or "pieces of paper", they will resist attempts to dishonor the debt. Boomers are the ones whose bank accounts the SS "reformers" are threatening to wipe out. They should also be made aware that they will be probably be cheated if the Trust Fund is not drawn down by the time they are all gone - this is money owed to a specific cohort of workers, not a fund that has to be maintained for workers into the indefinite future.
I've never heard people so concerned...
written by Carl Weetabix, June 07, 2013 10:17
About something 20+ years off. I wish we could get such concern about global warming which is a far shorter horizon.

It wouldn't be because their concerns are shorter, like say that TODAY they have to pay social security and medicare when their IRAs and 401ks and retirement instruments are already well cared for?
No Mystery here
written by Robert Weiler, June 07, 2013 10:24
There has been a 40 year long effort to try to convince people that the US Treasury bonds held by the SS administration are somehow 'less real' the the US Treasury bonds held by everybody else. The reason is obvious; the money was used to cover shortfalls created primarily by tax cuts for the wealthy and the wealthy don't want to have to pay the money back. Give Smauelson credit for coming out in favor of an out right theft of $3T from the poor and middle class by the rich, most journalists don't have the courage to admit that's the goal.
Samuelson is a "damned liar."
written by coberly, June 07, 2013 3:59
And here is the way damned liars work... by aways telling the exact truth in a way that is designed to mislead the person hearing it.

After telling us that "payroll taxes only cover some of their spending.." (this is a lie: payroll taxes cover ALL of Social Security. it is true that payroll taxes only cover part of what is called "medicare" but it is Social Security he wants you to think is paid for by the treasury... as we see later.)

But after telling us payroll taxes only cover some of their spending he asks us to be horrified that some time in the future payroll taxes will only cover some of their spending... (hunh?.. yep. read it again.) The fact unnoticed by Samuelson... or at least he won't notice... is that for whatever reason the congress decided to add to "Medicare" a couple of programs that would be paid out of the general budget. It's okay for them to do this, but then they get to spend the rest of time complaining that "SocialSecurityandMedicare" will only take in less than they pay out. Well, yes and no. Social Security will NEVER pay out more than it takes in... unless congress changes the law... as they did with the payroll tax holiday... but that is not Social Security running a deficit... that is congress changing Social Security so it runs a deficit. The difference is what the fight is all about.

Dean is right that the "problem" with Medicare is that Americans pay too much for medical care. That is the problem that needs to be fixed.

But it is also Americans who pay for the general budget contribution to Medicare... gosh, it's still Americans paying for what they need. It is not some evil program "medicarenadsocialsecurity" taking money from "the government"... or taking from "thetaxpayers" FOR "thegovernment."

As things look now the best way for people to pay for their basic needs in retirement after the famous 2033 Death of the Trust Fund is to raise their own payroll tax about eighty cents per week each year between now and then.

And probably the best way to pay for their future medical care in old age would be to put ALL of the "medicare" expenses back into the transparent, dedicated, and capped Medicare program as designed. This would be a significant "tax" raise, but it would save you a lot more in "insurance" from the private market"

with the latter we could start to work to contain costs by knowing what they were and who was paying for them without hoping some magical "government" or "the rich" were going to pay them

but with Social Security, the increase in costs would be so tiny you'd never notice them. and once we did this, the Samuelsons and the Petersons would have nothing to lie about.
the third lie
written by coberly, June 07, 2013 4:06
Samuelson says

""The numbers debunk the notion that Social Security and/or Medicare don’t affect the deficit. "

part of this is based on the amount of Medicare that is paid for with general taxes, which i tried to talk about above. but the "debunking" that SS is getting at is the lie that Social Security "affects the deficit." The reasoning goes... money that the government has to find to repay the money it borrowed from Social Security has to come from taxes or other borrowing. therefore SS affects the deficit.

This, as Dean points out, is a way of saying something like "i would have to get a job to pay back the money i borrowed from you. you are so unreasonable!"

but that's what passes for logic and moral responsibility among the highly paid non partisan experts, including the advisors to the President.
written by coberly, June 07, 2013 4:11
sorry... should have been "the debunking that Samuelson is getting at." not "SS."
Entitlement Bamboozle
written by Jeffrey Stewart, June 07, 2013 8:21
"Payroll taxes, Medicare premiums and other fees came to $920 billion. On a cash-flow basis, this left a deficit of $403 billion, $243 billion for Medicare and $160 billion for Social Security. The deficit had to be covered by general revenue from the Treasury and represented 37 percent of the overall 2012 federal deficit of $1.087 trillion." -R. Samuelson

This doesn't seem right. First, there's the conflation of Social Security and Medicare's finances.

Second, Social Security is pay-as-you-go social insurance, where current workers pay the benefits of current retirees. However, a Social Security trust fund was established as current FICA taxes exceeded current benefit payments since 1985 to prepare for baby boomer retirement. Since, 1985 Social Security tax revenue exceeded current benefits and was loaned to the US government since the latter ran "on budget" deficits since 1960, save two years of surpluses at the end of the Clinton administration. Thus, since 1985 Social Security hasn't operated on a "cash-flow basis."

Social Security pays current benefits from current revenue plus interest on the approximately $2.8T special issue bonds it holds in its trust fund. Thus, regardless of whether current Social Security benefits exceed current revenues (cash basis?), Social Security doesn't contribute one cent to the "on budget" deficit or debt. How the conclusion that it does follows logically is a mystery.

One really has to wonder about the motivations of someone like Robert Samuelson. The lure of WaPo employment, handsome income and the "prestige" of being a Very Serious Person must far outweigh any considerations of honesty or integrity.

written by coberly, June 08, 2013 4:58

yes, it's all a lie. one thing i overlooked from Samuelson's characterization of SS cash flow "deficit" is that this year the Treasury had to make up for the "payroll tax holiday."

They like to pretend that SS caused that deficit... but if they had left SS alone there would have been no deficit. That deficit was caused by the tax holiday... as it was intended to.

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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.