Robert Samuelson, Wrong Again

To his credit, in his column today Robert Samuelson apologized for a mistake in an earlier column. In the prior column he claimed that if Keynes saw the level of indebtedness of countries today, he would not be arguing that governments should be running deficits to stimulate the economy. The problem is that the level of indebtedness in the UK, where Keynes was writing, was far larger in the 30s than the level of indebtedness currently faced by the United States and every other wealthy country, except Japan.

However, he makes up for this apology by making several new mistakes or misrepresentations. In the former category he repeats what he said in the prior column:

"I was arguing that today’s highly indebted governments have less leeway to adopt massive 'Keynesian' stimulus programs of spending increases or tax cuts without triggering a backlash from bond markets — higher interest rates that undermine the stimulus. I still believe that’s true; the evidence is Greece, Ireland, Portugal, Spain and Italy."

Spain certainly cannot belong on this list since it was not and is not heavily indebted. It was running budget surpluses before the crisis and even now its debt to GDP ratio is still under 70 percent. Ireland also had surpluses and low debt before the crisis, but had its debt surge as a result of assuming the debt of private banks that it rescued.

Samuelson again refuses to note the fact that these countries are in a fundamentally different situation than the United States because they are on the euro and therefore do not issue their own currency. Countries with greater debt burdens, like the UK and Japan, pay far lower interest rates than these euro zone countries. This presumably has something to do with the fact that they have central banks that can buy up their debt if there is a panic in the market.

In arguing for cuts to Social Security and Medicare, Samuelson continues to ignore the fact that retirees pay for these benefits. Older people get a disproportionate share of government spending just as rich people do. In the latter case the reason is that rich people own a disproportionate share of government bonds and therefore get a disproportionate share of the interest paid out by the government each year. It would make as much sense to say that we should cut interest payments to rich people because the money could be better spent on children as it does to say that we should cut Social Security benefits to wealthier beneficiaries. The point is the same in both cases: they paid for these income flows.

Also Samuelson pulls a cheap trick in trying to make his case by telling readers that:

This is true only because it refers to an average for the top quintile. This average includes the incomes of people like Peter Peterson and Warren Buffet. Ninety percent of Social Security benefits go to individuals with non-Social Security income of less than $40,000 a year. Eliminating the Social Security of people like Peter Peterson will not affect the program in any visible way. The only way to achieve notablyesavings is by reducing benefits for people who by any definition are very middle class. (Remember, for tax purposes people are not rich until their income crosses $200,000 a year.)

The main source of the country's projected long-term budget problems is Medicare and Medicaid. The costs of these programs are driven by our broken health care system. We pay more than twice as much per person for health care in the United States as people in other wealthy countries with little to show in the way of outcomes.

This is not a problem of seniors getting too much in benefits. It is a problem of paying too much for the health care that they and others receive. The answer to this problem is to fix the health care system, not to deny care for seniors. (One obvious route is to rely on increasing trade in health care services, but unfortunately hard-core protectionists dominate public debate so this is rarely even raised as an issue.)

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written by bmz, December 30, 2011 9:04 AM

But we can reduce the cost of Medicare/Medicaid to easily sustainable levels (even for Samuelson) and fully protect recipients at the same time. The Veterans Administration's Health-Care System has the highest rating of all our healthcare systems; and costs 40% less than our private healthcare systems. Hence, by moving to a fully socialized healthcare system like the VA(certainly what is good enough for our honored veterans should be good enough for our seniors and other "welfare" recipients) will eliminate all of Samuelson's concerns.

Social Security, The Elderly And The Lesser Depression
written by Charley James, December 30, 2011 9:22 AM

What advocates of making massive changes, unnecessary cut and even doing away with Social Security never mention is that, throughout this recession, the elderly who rely on Social Security (and Medicare) have endured fairly well. While no one lives a lush life by relying on Social Security alone, the fact is that as millions of their fellow Americans were plunged into poverty, Social Security recipients did alright. It's not a "Ponzi scheme" or "scam" despite what many Republicans want people to believe.

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written by Chris, December 30, 2011 10:26 AM

Samuelson is sadly typical of quite a few columnists writing for "major" publications who really know next to nothing about economics. I could name a couple at Bloomberg as examples, but to be nice, will refrain from doing so.

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written by Cynical, December 30, 2011 11:13 AM

Dean, there are many instances of too many health care dollars being allocated to essentially futile end-of-life care.
Emergency rooms and critical care units are like merry-go-rounds for many patients with advanced dementia and in many instances who are chronically vegetative. These patients are frequent (monthly and even more often in many instances) hospital patients (arriving through the most expensive door, the ER), usually septic (i.e.,severe infections), get the kitchen sink thrown at them (multiple diagnostic tests including (at the least) labs and imaging like x-rays and ct scans, multiple antibiotics for the multiple drug resistant bacteria they carry, fluids and drugs to raise their blood pressure which is monitored invasively, intubation (i.e.,breathing tubes), and in increasing numbers even thrice weekly hemodialysis to do the work of their non-functioning kidneys (unfortunately none of these heroics cure barely functioning brains)). We 'succeed' in getting them 'well' enough to be returned to their extended care facility (the other part of the merry-go-round) for a few weeks until their next ER visit.
I can't treat them any more without wondering how many years of how much primary care for how many uninsured 18-65 year olds could be paid for by just one of their visits.

Relative sizes of fixes to social security
written by AndrewDover, December 30, 2011 12:06 PM

The Social Security system currently has a negative long-range actuarial balance considering scheduled beenfits. The amount is -1.92 % of taxable payroll.

This could be fixed by doing all of the below fixes, which happend to add to 1.92%.

1.13% Impose a 6 percent payroll tax on OASDI covered earnings above the current taxable maximum starting in 2011. Benefit computations would not reflect any earnings above the taxable maximum amount.

0.50% Starting with the December 2011 cost-of-living adjustment (COLA), compute the COLA using a chained version of the consumer price index for wage and salary workers (CPI-W). This new computation is estimated to result in an annual COLA that is 0.3 percentage point less, on average.

0.28% Tax Social Security benefits in a manner similar to private pension income beginning in 2011. Phase out the lower-income thresholds during 2011-2020.

http://www.ssa.gov/OACT/solvency/provisions/index.html

I would consider the 0.28% reduction to be notable and visible.

Of course we could just apply the existing rules and cut benefits around 20% around 2037. The people via Congress will decide.

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written by bmz, December 30, 2011 12:21 PM

AndrewDover: Re:0.28% What you are proposing here is true double taxation. Unlike private pensions and 401(k, Social Security was taxed when paid in.

not the same
written by Brian Dell, December 30, 2011 1:58 PM

"It would make as much sense to say that we should cut interest payments to rich people because the money could be better spent on children as it does to say that we should cut Social Security benefits to wealthier beneficiaries. The point is the same in both cases: they paid for these income flows."

Not accurate. The interest payments are legal obligations. "The point would be the same" if SS were privatized, such that there were individual accounts. Do you want SS privatized or do you want to give up the "paid for these income flows"? Because you can't have it both ways.

Going forward, even the moral argument of "paying" for future SS benefits is increasingly dubious since the program is being funded to a significant extent by general revenues. The SS benefits of the 90%, in other words, will, in the future, be paid for by income taxes on the top 10%. Pundits like Kevin Drum at Mother Jones says this should be welcomed as a progressive outcome.

-3

Reply to bmz
written by AndrewDover, December 30, 2011 2:43 PM

Only a small portion of the eventual SS beenfits was ever taxed.

See the first page of https://www.cbo.gov/doc.cfm?index=4949&type=0

"In Social Security, an individual who is an employee pays one-half of the payroll tax from after-tax income. The other half is paid by the individual's employer, and the employee is not liable for current income taxes on the employer's share."

".... Hence, roughly 50 percent of benefits in the future may be characterized as a return of never-taxed employer contributions and "interest" thereon, roughly 43 percent as the never-taxed "interest" on employee contributions, and only roughly 7 percent as a recovery of already taxed employee contributions. "

The tax would be small for those without other income than social security in any case.

[[[[
written by mel in oregon, December 30, 2011 5:16 PM

privitizing social security has the same effect as everything else that is privatized. it doesn't work. why? because once you let in our corrupt corporations, huge bonuses will be paid at the top, benefits will shrink, & the elderly & disabled will live in poverty & will die much much sooner. probably okay with cynical who makes a few good points. but the waste at our biggest corporations is probably 10,000 times as much as the waste he mentioned. our 900 military bases overseas, our perpetual war machine & the idiocy of iraq & afghanistan wars, the idiotic reagan star wars, the waste in our military procurement system, the wallstreet loans of over $10 trillion at almost zero interest, the crippling of our manufacturing base due to outsourcing, the ruination of our home equity & all the millions of foreclosures by wallstreet speculators, our corrupt regulation agencies such as sec, the fed, fdic, ftc, hell all of 'em. not to mention the idiotic rating agencies like moodys & standard & poors who are bed with the corporations they "rate". nope, we have much bigger problems than social security, but of course americans like to dwell on "important" issues such as where obama was born, romney's religion & whether gays should marry or not.

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written by bmz, December 30, 2011 5:24 PM

Andrew--I did have a lot of respect for you--so I am surprised that you cite that Reagan administration poppycock. Among its many smoke and mirrors is its use of a 4% inflation rate in order to derive a SS earnings rate far in excess of what has actually transpired. Based on its assumptions, the average SS beneficiary's SS contribution was projected to be only 7% of the benefits; but they used only nominal dollars for the contribution; whereas, to be honest they should have used real dollars.
Using myself as an example, my greatest earnings years were from 1984 to about 2004; and, inasmuch as I was self-employed, I was paying tax on 100% of my SS/Medicare contribution until about 2000 and 75% until I retired in 2007. My retirement income now is such that I pay income tax on about 80% of my SS benefits. If I live until my life expectancy I would get back about what I actually put in in real dollars--with zero real "earnings." Hence, I am paying double taxation(especially in comparison to IRAs and 401(k)s which pay tax on neither the contributions nor the earnings).

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written by bmz, December 30, 2011 5:35 PM

Well...maybe it wasn't the Reagan administration; but my criticism still stands.

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written by liberal, December 30, 2011 8:23 PM

Brian Dell wrote,

Not accurate. The interest payments are legal obligations. "The point would be the same" if SS were privatized, such that there were individual accounts. Do you want SS privatized or do you want to give up the "paid for these income flows"? Because you can't have it both ways.

Wrong. SS is a legal obligation, too. The difference is that privately held bonds are a property interest---hence not paying them back would legally run up against the Constitution.

But what should be at issue in discussions of political economy is what's right, not what's merely legal. In that sense, Dean's analysis is legitimate.

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written by AndrewDover, December 30, 2011 9:51 PM

I refer BMZ to "If You Are Self-Employed"

http://www.socialsecurity.gov/pubs/10022.html

"There are two income tax deductions that reduce your taxes.

First, your net earnings from self-employment are reduced by half of your total Social Security tax. This is similar to the way employees are treated under the tax laws, because the employer’s share of the Social Security tax is not considered wages to the employee.

Second, you can deduct half of your Social Security tax on IRS Form 1040."

and "Self-Employment Tax"
http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

The question of inflation in a cost basis is also not considered in 401K/IRA or capital gains for that matter.

How did " I was paying tax on 100% of my SS/Medicare contribution until about 2000 and 75% until I retired in 2007." occur? Did the tax law change in 2000?

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written by High Plains Lawyer, December 31, 2011 5:11 AM

The problem is solved by a flat tax. That is, by turning the regressive payroll tax into a flat tax. Subject all income, regardless of the source, to the payroll tax. Eliminate the cap on the payroll tax. Don't just tax money made from work, but money made from money as well.

The right wingers should love this solution because they are so fond of flat taxes.

Also, it is equitable because working people have been overpaying on the payroll tax for a generation. The payroll tax, in effect, has become a means of transferring tax dollars from people who work for a living, to those who don't -- i.e. the top 1%

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written by Jethro, December 31, 2011 8:37 AM

No mention here or by Dean as to why people think outcomes (ie. people will be healthier) will be different under a total socialized, government run, or VA style system ??
No mention that the people in the USA are the most obese / overweight population in the history of the world. Diabetes and other related conditions are already at epidemic levels and are expected to rise. So if 2/3 of the population will not take responsibility for the portion of their health that they can control, the government can ??????????? I don't care which plan you use private or public, Somebody please explain that logic to me.

-2

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written by bmz, December 31, 2011 3:05 PM

Andrew: Yes, the two income tax deductions that you reference were first implemented I think in 2002; they had the effect of reducing the self-employed's income tax on Social Security tax payments from 100% to 75%.

When did the deduction for one-half of self-employment tax start?
written by AndrewDover, December 31, 2011 4:43 PM

Hmm.

The 1999 self employment worksheet on line 13 also has a "Deduction for one-half of self-employment tax."

www.irs.gov/pub/irs-prior/f1040sse--1999.pdf

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written by Don Levit, December 31, 2011 5:41 PM

Brian wrote that Social Security is a legal obligation.
There are actually 4 types of debt - ranging from the strongest obligation to fulfill to the weakest.
From a paper entitled "Federal Debt, Answers to Frequently Asked Questions, An Update," published by the GAO:
Look on pages 65 and 66.
The strongest obligation to fulfill is Explicit Liabilities. This is represented, for example, by Debt Held by the Public.
The weakest obligation to fulfill is called Exposures implied by current policies or the public's expectations about the role of government.
Included here are debt held by government accounts, and future Social Security and Medicare benefits.
Any Social Security and Medicare benefits beyond the current year are not even considered as a liability!
http://www.gao.gov/new.items/d04485sp.pdf.

Regarding the solvency of the Social Security trust fund, realize that every dollar of interest and principal that is used by the trust fund is new monies AS IF THE TRUST FUND DID NOT EXIST!
Don Levit

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written by Calgacus, December 31, 2011 5:56 PM

Jethro, everywhere in the world, socialized medicine provides superior care, more efficiently, at a lower cost than the private sector abortion that is US medicine. And even the rich in the USA don't get very good care either. Why on earth should be the USA be different, when the socialized sectors of US medicine - the VA, Medicare - are similarly superior to the "private sector" monstrosity? The less the private sector is in medicine, the better, the faster the pace of research & progress is.

The stuff about obesity is largely mythical. See Campos's The Obesity Myth and many other sources - being fat has health minuses, but pluses too. If you are very old or in a car accident or facing a long hospital stay - fat is good!

Preoccupation
written by Jeffrey Stewart, December 31, 2011 8:26 PM

Robert Samuelson's job is to be wrong on all the important issues of the day. His job is obfuscation and deception, he's damn good at it and well paid by WaPo for filling this role. Ditto for David Brooks at the NY Times.

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written by Tanstaafl, January 01, 2012 11:48 AM

The Social Security payroll tax is not a benefit tax nor is it a contribution to a pension plan. It is fine to cite mistakes by Samuelson but your own deliberate distortions weaken your case. He distorts, you distort. Wow, what a surprise.

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written by Don Levit, January 01, 2012 4:11 PM

Tanstaafl is absolutely correct.
It is actually similar to a welfare program.
From a paper from the FASAB, the accounting advisor for the federal government, entitled "Accounting for Social Insurance, Revised, Exposure Draft, Nov. 17, 2008:"
Page 31 The Alternative View (the present view of the FASAB) is that social insurance comprises two separate nonexchange transactions - the compulsory payment of taxes and the government's payment of benefits.
Page 35 "Social insurance benefits are not part of an exchange but are a welfare program and/or an annual general fund program like Medicaid and defense.
Page 36 The Primary View (not the present view of the FASAB) collecting taxes and paying benefits are not two separate non-exchange transactions, and the government should not be free to walk away from social insurance commitments. It is unsupportable from accounting, public administration, and political perspectives."
http://www.fasab.gov/pdffiles/socialins_exposurefinal.pdf.
Don Levit

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written by bmz, January 01, 2012 4:30 PM

Andrew: Okay, I guess my memory failed me. However, I did the calculations assuming those those deductions for one half of the self-employment tax and I calculated that after 1984 I was paying income taxes on 81% of my SS/Medicare (self-employment) taxes; and now I pay income taxes on 80% of my Social Security benefits = a total of 161%, whereas 401(k)s and other retirement plans pay only 100%.

The 50% self-employment deduction started in 1990.
written by AndrewDover, January 01, 2012 5:41 PM

"Beginning in 1990, self-employed workers are allowed a deduction, for purposes of computing their net earnings, equal to half of the combined OASDI and HI contributions that would be payable without regard to the contribution and benefit base. "

http://www.ssa.gov/OACT/ProgData/taxRates.html

Anyhow, it is certainly true that raising the taxes on benefits would have a impact on those with other income. However I don't see any other way out other than some combination of more taxes or less benefits.

Robert Samuelson, Wrong Again

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