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

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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.