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Home Publications Blogs Beat the Press The Social Security and Medicare Cutters are Very Unhappy

The Social Security and Medicare Cutters are Very Unhappy

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Friday, 28 June 2013 04:38

Who can blame them? The vast majority of people across the political spectrum oppose their plans to cut these programs. Furthermore, improved budget projections (partly because of cuts that are very bad news) have drastically reduced both current deficit projections and projections for longer term deficits. Finally, one of their main props for the urgency of deficit reduction turned out to be nothing more than a Harvard Excel spreadsheet error.

No, things have not gone well for those wishing to ax Social Security and Medicare, but they are not about to give up. And with the money and access to the media they enjoy, why should they?

Hence we have Jon Cowan and Jim Kessler from Third Way giving the Washington Post's house view in a column headlined, "the left needs to get real on Medicare, Social Security and the deficit." The proximate cause for Cowan and Kessler's ire is a column by Neera Tanden and Michael Linden from the Center for American Progress which argued that we should focus on fixing the economy's current problems by improving infrastructure and creating jobs. 

To their great credit, Tanden and Linden reversed their earlier concern with deficit reduction based on the evidence. The deficit has shrunk by more than had been projected and the downturn has been longer and deeper than they had expected. Faced with new facts, Tanden and Linden proposed different policies. This makes deficit dead-enders like Cowan and Kessler very unhappy. 

Let's see what they have to say.

Actually their main trick is pretty simple and right up front. They use the old whack them with a really big number trick. Cowan and Kessler tell us that in 2030 we are projected to have a deficit of $1.6 trillion. Got that, $1.6 TRILLION!!!!!! Yeah, that is lots of money and we're supposed to be really really scared.

Anyone know how big the economy will be in 2030? The Congressional Budget Office (CBO) projects that it will be just about $35 trillion. This means that this very scary $1.6 trillion projected deficit will be slightly less than 4.6 percent of GDP.

Is this too big? It is probably larger than the deficit that we will want to be running 17 years from now, but it is not exactly a disastrous deficit. We ran deficits that were larger in every year from 1983 to 1986. We were also higher at 4.7 percent of GDP in 1992. Those deficits did not wreck the economy, even if they were arguably larger than would be desired.

But the key point is that the bad story that Cowan and Kessler are hanging over our heads is not exactly a disaster, it is sort of like telling us that we might get the flu 17 years from now. No one wants to get the flu, but we are probably not going to ignore all the problems we face now (and those are huge) because we might get the flu in 17 years. If we had thought this way back in the 1960s we wouldn't have established Medicare and Medicaid because of the deficits we might see just 17 years after these programs were put into place.

But Cowan and Kessler don't want us to address current problems -- like children growing up in poverty, with parents who may never get a job again -- they want us to cut Medicare and Social Security. They tell us that even if we restore pre-Reagan type taxes on the rich we would still have a deficit of $1.3 trillion in 2030. (I'd actually place a higher priority of getting much of this revenue from a Wall Street sales tax that nails financial speculation, like the one in the U.K., but we'll take what we can get.)

Yes, $1.3 trillion is still a really big number, but it comes to just 3.7 percent of GDP. That's a deficit that we could run pretty much forever. The deficit was larger than this in all but three of the years between 1982 to 1993. Again, smaller deficits might be better, but a deficit of 3.7 percent of GDP is certainly not a disaster.

And, the fact is we are not actually making the budget for 2030. We are going to be electing new Congresses every two years between now and 2030 and we have 4 presidential elections between now and then. Even if we got Congress and the President to agree today to adopt the Cowan-Kessler agenda in its entirety, the nasty voters may put in people who change course over the next 17 years. That's the problem with democracy, people get to make choices. 

Let's get back to Cowan and Kessler:

"In the mid-1960s, the federal government spent $3 on public investments for every $1 on the major entitlement programs. By the early 1970s, the ratio was one to one. Last year, it flipped. The federal government spent $3 on Social Security, Medicare and Medicaid for every $1 on federal investments, according to our analysis of data from the Office of Management and Budget. By 2022, the ratio will be one to five. In other words, entitlement programs are drowning out public investments just as international competition and technology demand that we need these investments the most."

Yes, we didn't have Medicare in the mid-1960s and we still had relatively few retirees. Of course these programs now cost more than they did then. And we are taxing ourselves to pay for them. The Social Security tax has been roughly doubled over this period and Medicare tax went from 0 to 2.95 percent of payroll. And contrary to Cowan and Kessler's analysis of the politics, very few members of Congress have lost their jobs because of these tax increases. The public has been willing to pay for these programs and according to polling research done by the National Academy of Social Insurance, they would be willing to pay more if necessary. As a factual matter, the impact of these taxes on the living standards of the middle class has been trivial compared to the policies that have led to the enormous upward redistribution of before-tax income over this period.

Since these programs are financed primarily through dedicated taxes, one would be hard-pressed to make the case that they are responsible for the decline in infrastructure spending. We are collecting a much smaller share of GDP in corporate income taxes and excise taxes (largely tariffs) than we did in the 1960s. It would be difficult to argue that these tax reductions were directly related to the rise in Social Security and Medicare taxes.

Cowan and Kessler go on to display a remarkable ability to ignore changing facts. They tell us:

"As evidence [that the program's financial situations can improve], some liberals point to this year’s Medicare trustee report, in which the program’s fiscal outlook — mercifully — improved. In truth, it improved from horrid to awful."

Actually, since 2008 the Medicare trustees have reduced their projection of the shortfall in the program by almost 70 percent. Most people would consider that a pretty big deal.

But Cowan and Kessler make their agenda as clear as possible at the end of the column:

"Fantasy No. 4 is that the politics to fix entitlements will get better. In fact, the politics will get worse every election cycle. In 2012, one out of six voters was a senior citizen. By 2024, one in four will be, based on the Census Bureau’s Statistical Abstract. How will we possibly fix safety-net programs for the elderly then? The answer: on the backs of the working-age middle class."

Of course the politics only gets worse if the goal is to cut rather than preserve these programs. Cowan and Kessler's Census numbers are exactly what many on the left have in mind in saying that the politics will get better. It will almost certainly be much more difficult politically to cut Medicare and Social Security benefits in 10 years than it is today.

That is clearly very frightening to Cowan and Kessler, but good news to the people who support these programs. And in a country where an ever larger share of income is going to the rich, there will be ample opportunities to ensure that the working-age middle class does not suffer. 

 

Note: GDP number corrected from earlier version.

 

 

Comments (14)Add Comment
If You Think It's Bad Now, Just Wait Till It Gets Better
written by Last Mover, June 28, 2013 6:34
It will almost certainly be much more difficult politically to cut Medicare and Social Security benefits in 10 years than it is today.


Exactly. This is how socialism is strangling America. Creeping with an imperceptable crawl ever so slowly as it boils millions of American Frogs in the collectivist commons pot of their own willful blind ignorance.

Wake up America. It's precisely when things get better that they must be nipped in the bud before the hypnotic lure of free lunches from the government fatten you up for the kill.

Lay off the Medicare and Social Security candy people. It may not cost as much as before, but we're here to tell you, it's not only going to get worse before it gets better- it's not going to get better at all.

It's not going to get better until it's privatized and costs at least double what it costs now.
Slightly off
written by Ryan, June 28, 2013 7:51
Ironic that they cite the Stat Abstract given that cuts has ended its compilation. I and many others will be less efficient without it in 10 years.
...
written by medgeek, June 28, 2013 8:13
"...about $46 trillion. This means that this very scary $1.6 trillion projected deficit will be slightly less than 4.6 percent of GDP..."

You must be using R&R's spreadsheet. I get just under 3.5%
:-)
Why Would Deficits Wreck the Economy?
written by Paul Mathis, June 28, 2013 8:39
We were also higher at 4.7 percent of GDP in 1992. Those deficits did not wreck the economy


What the cons NEVER explain is why large deficits would wreck the U.S. economy. Beyond their ludicrous "crowding out" in a recession theory, they have no explanation of cause and effect which is why Reinhart and Rogoff only laid out correlations and never claimed any causation.

In fact, large deficits are good for the economy in a recession as in 1992. As any Keynesian knows, demand drives the economy and deficits provide that demand in a recession. By 1998, the budget was balanced thanks to deficit fueled growth under Clinton.
Maybe
written by TK421, June 28, 2013 9:39
Maybe it will be more difficult to cut these programs in ten years, but considering we have a Democratic president openly working to cut them for the first time that might not turn out to be the case.
...
written by skeptonomist, June 28, 2013 1:42
The main unreality in the politics of economics is in taxation. People overwhelmingly indicate that they want government services such as SS and Medicare and even Medicaid. These things can't be supported without increasing taxes, but Republicans constantly demand reduction of taxes. Almost all their discussion of these matters avoids mentioning the fact that tax rates must go up, not down.

In the heyday of voodoo economics, Republicans could promise more services with lower taxes, but since 1981 this has been proven conclusively to be false and they don't really rely on it any more, aside from a perfunctory mention when they are not likely to be called on it.
...
written by NWsteve, June 28, 2013 2:08
@last mover: you continue to enlighten and entertain at the same time: AWESOME...
eventually, the occasional tourist and other new arrivals should come to an appreciation of your efforts...
then, as you most often do, you will spring a *180* that will surprise us all...
thank you for your many contributions...
the politics will get better
written by geraldmcgrew, June 28, 2013 3:50
Two decades ago the late Theodore Roszak wrote a column arguing that when the baby boomers are all retired, far from spelling peril for programs helping the elderly, it would actually make EXPANSION of such programs, as well as others for the needy based on the same spirit, much more likely. For the simple reason that such a large number of voters would then be retired, seniors would become one of the (if not THE) most powerful constituencies in the country.

I've often been mystified that this does not come up more often. Of course while such potential is clearly there, this constituency will still need to be effectively organized, the element that is so often lacking among progressives. But hopefully this is starting to change for the better.
Families are multigenerational...
written by Tom in Wisconsin, June 28, 2013 8:27
People who harp on the "intergenerational warfare" meme always seem to ignore the fact that Grandma and Junior are PART OF THE SAME FAMILY. If my parents' generation had decided to defund SS and Medicare, they would now be living in my household as my dependents. What I gain in lower payroll taxes I would lose in expenses and unpredictable medical costs. I would have less to spend on my kids today, less to invest in their future. And maybe my parents would have saved a lot more for retirement, but maybe not. And if their response to the financial crisis is any indication, that retirement money would have been invested in mutual funds that were too conservative, they would have liquidated their company stockholdings at the bottom of the market, and sold their Treasury bonds in 2010 when Niall & Co were warning about bond vigilantes, leaving them with a smaller, zero return portfolio of bank CDs while T-bills rose in value...

Yikes.
...
written by jamzo, June 28, 2013 9:11
vis a vis rent extractors in the economy - some think the health care sector is a significant extractor too

a comment to a post on the blog 1boringoldman - the modern robber barons

http://1boringoldman.com/index.php/2013/06/27/the-modern-robber-barons/
Mitch
June 28, 2013 | 9:16 pm


Thank you for posting this. This is easily the largest rent extraction sector in the economy. People are increasingly suspicious of health care providers and that is sadly keeping away people who need treatment.
what Tom in Wisconsin said
written by watermelonpunch, June 28, 2013 9:12
People who harp on the "intergenerational warfare" meme always seem to ignore the fact that Grandma and Junior are PART OF THE SAME FAMILY. If my parents' generation had decided to defund SS and Medicare, they would now be living in my household as my dependents. What I gain in lower payroll taxes I would lose in expenses and unpredictable medical costs. I would have less to spend on my kids today, less to invest in their future.


Exactly.

And that's part 2 of my usual gripe about this ridiculous framing...

That most young people hope to get old one day!!

Unless the people who believe this intergenerational warfare believe that young people today are planning on mandatory assisted suicide centers for themselves, as an alternative to getting old, where they, at a certain age, intend to give themselves up to be made into Soylent Green for the next generation of youths... because of their devotion to only the young.
Eisner's must-read - to refute SS "facts".
written by Calgacus, June 29, 2013 11:03
The main unreality in the politics of economics is in taxation. People overwhelmingly indicate that they want government services such as SS and Medicare and even Medicaid. These things can't be supported without increasing taxes, but Republicans constantly demand reduction of taxes. Almost all their discussion of these matters avoids mentioning the fact that tax rates must go up, not down.

"The fact that ..."? No fact, but nonsense. Nonsense on stilts. So many well-meaning progressives are in love with this innumerate "fact" - and the worst 1% of the 1%, the Kochs, the Petersons love them for it. Tax rate are too high. Particularly on the 99%. Particularly Social Security taxes. Get rid of FICA totally, right now. And increase SS benefits.

In any case, get rid of (spend down as soon as possible) the giant Killer-Teddy-Bear Trust Fund - the pecuniary accountancy of theft from the working class. Or if you want to have this Teddy Bear, just fill the Fund up with 20%/yr coupon bonds!, as Eisner suggests - see below.

Why do people keep voting Republican? Because since the 70s, the Dems have become the loser-liberal austerity party of pre-Keynesian "economics". The Republicans spend on the stupidest, most depraved, most criminal and idiotic things. But at least they spend!

Must Read:

http://pdfcast.org/download/ss-1.pdf : free link to Robert Eisner’s Save Social Security from Its Saviors Recommended by Stephanie Kelton as “the most honest and concise essay on the subject.” & “Find Robert Eisner’s article : It should be THE basis for the progressive opposition to any/all attempts to change the program.”
Dean Gets R&R Wrong ..
written by aj oliver, June 30, 2013 8:27
This (below) is not "spreadsheet error". It is deliberate fraud.
Why do you give R&R a pass? Professional courtesy?

". . Selective exclusion of data
RR excluded available data for Australia (1946–1950), New Zealand (1946–1949), and Canada
(1946–1950). In the Canadian case, all five omitted years were in the over 90 percent public
debt/GDP category. Those years were also the only ones in which Canada is in the highest public
debt/GDP category. Median GDP growth in Canada for the excluded years was 2.2 percent. For
Australia as well, all five excluded years were in the highest public debt/GDP category and were
the only years in which Australia was in this highest category.
The New Zealand exclusions are of particular significance. This is because all four of the excluded
years were in the over 90 percent public debt/GDP category. Real GDP growth rates in those
years were 7.7, 11.9, -9.9, and 10.8 percent respectively. After RR excluded these years, New Zealand contributes only one year to the highest public debt/GDP category, 1951."
Conveniently elides a major cause
written by Matt, June 30, 2013 1:34
Let's get back to Cowan and Kessler:

"In the mid-1960s, the federal government spent $3 on public investments for every $1 on the major entitlement programs. By the early 1970s, the ratio was one to one. Last year, it flipped. The federal government spent $3 on Social Security, Medicare and Medicaid for every $1 on federal investments, according to our analysis of data from the Office of Management and Budget. By 2022, the ratio will be one to five. In other words, entitlement programs are drowning out public investments just as international competition and technology demand that we need these investments the most."


Awfully... CONVENIENT of Cowen and Kessler to skip one of the direct causes of that trend: conservative pols who have been *slashing* public investment while they try to con us into slashing "entitlements" as well.

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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.

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