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A False Dilemma Over Social Security Print
Written by CEPR   
Tuesday, 14 February 2012 12:40
Fred Hiatt, editorial page editor at the Washington Post, told readers on Sunday that there's a conflict growing between "accountability liberals" and "nostalgia liberals" over Social Security. According to Hiatt, "accountability liberals" believe Social Security reform — in the form of scaling back benefits to the wealthy, or means testing — is necessary to save the program. "Nostalgia liberals," on the other hand, believe this type of reform could cause the program to lose support and funding. Even if you choose to accept Hiatt's ridiculous either-or fallacy, as Dean Baker points out over at Beat the Press the only way to save a substantial amount through means testing would be to extend it to people earning $30,000 a year. That's not exactly "wealthy."
Letter to Rep. Tom Cole: Social Security is Not 'Closing in on Bankruptcy' Print
Written by Dean Baker   
Monday, 13 February 2012 13:30

The Honorable Tom Cole
2458 Rayburn House Office Building
Washington, DC 20515-3604

Dear Representative Cole:

In a recent column calling for entitlement reform, you wrote that Social Security is “…closing in on bankruptcy.” This is not true. The latest projections from the Congressional Budget Office (CBO) show that Social Security will be able to pay full benefits through the year 2038 and will be able to pay almost 80 percent of full benefits for decades afterwards.

As you point out in your column, the CBO noted that higher projected costs for Social Security, Medicare, and Medicaid stem partly from aging and partly from “rising costs for health care.” In fact, it is easy to show that the latter – our broken private health care system – is the main problem. The United States pays more than twice as much per person for health care than the average in other wealthy countries. If Americans paid the same for health care as people in other countries, we would see budget surpluses over the long term, not deficits. 

As a member of the House Appropriations and Budget Committees, it is crucial that you accurately describe vital programs like Social Security and its relationship to debt and deficits.  If I can provide you with further information or background on this, I would be happy to do so.

Letter to Newt Gingrich: Privatized Social Security is Not the Answer Print
Written by Dean Baker   
Thursday, 26 January 2012 12:20

The Honorable Newt Gingrich
3110 Maple Drive
Atlanta, GA 30305-2650

Dear Speaker Gingrich:

I have seen you refer to the privatized Social Security system in Chile several times as a model for the United States. I believe that you would not hold this view if you were more aware of the details of the Chilean system.

First, you have often claimed that the Chilean system is voluntary. This is not quite right. The system is mandatory for workers in the formal sector. However like most countries in Latin America, Chile has a large informal sector where participation is de facto voluntary. (The Chilean military and policy forces are an exception to this rule. They were allowed to remain under the traditional defined benefit system. This presumably was in part due to the fact that the program was put in place under the Pinochet dictatorship.)

The second point is that the system is not simply a defined contribution system that does not require funding from the government. The system guarantees workers who have participated for at least 10 years a minimum benefit. To get this benefit workers turn over the money they earned in their accounts and then get the minimum benefit from the government, with the government making up the difference.

In fact, most workers in the informal sector go this route. They effectively vote with their feet for this government-guaranteed benefit, generally participating in the system only long enough to qualify for the minimum benefit. Part of the reason is likely that they fear the volatility of financial markets and also they resent seeing 20-30 percent of their contributions siphoned off by the financial industry.1 (The corresponding figure for administrative costs for the U.S. Social Security system is roughly 0.5 percent.)

The privatized system was in fact not popular with the Chilean people. Reform of the privatized system was the major issue in the 2005 presidential campaign. Both major candidates promised to reform the privatized system, including Sebastian Pinero, the current president and brother of Jose Pinero, the designer of the reformed system under Pinochet.

Finally, it is difficult to understand the possible basis for your claim that we would reduce inequality in wealth by 50 percent with this system. Since the payback structure of Social Security is quite progressive, low-income earners would almost certainly be losers under a privatized system, which would make inequality greater not lower.

I would be happy to discuss this background more with you or your staff.

1 For more background on the privatized system in Chile and other Latin American systems, see Gill, Indermit, Truman Packard and Juan Yermo, 2004. Keeping the Promise of Social Security Reform in Latin America. Stanford, CA: Stanford Economics and Finance.


Douthat's Projections on Social Security Conflict with Reality Print
Written by CEPR   
Wednesday, 25 January 2012 14:40

In Ross Douthat's response in the New York Times to last night's State of the Union address, he summarizes the shortcomings of Obama's populist approach to his re-election campaign, specifically the emphasis on politics over policy. In particular, Douthat points out: "Raising taxes on the richest 1 percent will not cover the projected cost of Medicare and Social Security once the baby boom generation has retired." By the "projected cost" of Social Security, does he mean these projections? Because as Dean Baker points out over at Beat the Press, the Congressional Budget Office's projections show Social Security will be fully solvent for almost three decades, with no changes whatsoever, and it will be able to pay more than 80 percent of scheduled benefits after that date for the rest of the century.

Of course if you lump anything in with Medicare, like muffins (thanks, JSeydl), you can make it look like that second item is also experiencing explosive growth. Magic!

Friedman Wants a Presidential Candidate Who Will Cut Social Security, Medicare Print
Written by CEPR   
Monday, 23 January 2012 14:00
American voters are up grabs, Thomas Friedman wrote in a recent column, and one of the qualities voters may be looking for in a candidate is someone with the courage to cut voters' Social Security and Medicare benefits. That's the gist of Friedman's message, considering he name checks the "Bowles-Simpson bipartisan deficit reduction plan" — a plan that Dean Baker reminds us again and again was never approved by the commission. As Dean writes on Beat the Press, the Bowles-Simpson plan would "sharply cut back benefits for middle-income workers like school teachers and firefighters in future decades," reduce Social Security benefits even more by changing the annual cost-of-living adjustment formula and raise health care costs for the elderly with cuts to Medicare. To Friedman, that's doing "what needs doing." It's not like there are other options for cutting the deficit, right?
Letter to Rick Santorum: Elderly Are Not the Wealthiest Americans Print
Written by Dean Baker   
Thursday, 12 January 2012 15:20
The Honorable Rick Santorum
PO Box 37
Verona, PA 15147

Dear Senator Santorum,

While campaigning recently, you said that the nation must act immediately to save Social Security. You suggested, among other things, raising the normal age of retirement for Social Security. In defending your statements, you asserted that ”… Americans over the age of 65 were society’s poorest age group in 1937, when Social Security was created. Now that group is the wealthiest.”

In fact, there is no need for immediate cuts to Social Security. Both CBO projections and the reports of the Social Security trustees show that the Social Security trust fund will be able to pay full benefits for the next 25 years. And even if Congress makes no changes whatsoever to the program, it will still be able to pay about 80 percent of full benefits from then on. As it stands, the normal retirement age for Social Security is scheduled to gradually increase to 67. Needlessly raising it further would result in significant cuts in benefits (raising the normal retirement age by an additional year amounts to roughly a 6 percent cut per year).

Also in contrast to your claim that Americans of 65 are now the wealthiest age group in the nation, the collapse of the housing bubble led to an enormous loss of household wealth for current and near retirees, leaving most with little other than their Social Security benefits to depend on in their retirement. The government’s supplemental poverty calculations, which include the value of government non-cash benefits, show that the elderly have a somewhat higher poverty rate than the adult population as a whole.   

As your campaign for the Republican presidential nomination continues and you speak to potential voters about Social Security, I hope that you will have the opportunity to review the finances of this vital program. If I can provide you with further information or background on this, I would be happy to do so.

Economists Also Part of the Problem When It Comes to Social Security Misinformation Print
Written by CEPR   
Tuesday, 10 January 2012 15:10
CEPR Co-Director Mark Weisbrot was presenting at the American Economic Association's annual meetings last week, and he attended some of the panels with the "big budget experts." If you haven't read his new Guardian column about the experience, you should check it out to see what former CBO director Douglas Holtz-Eakin and others think about the budget and Social Security and Medicare. At least one panelist had a grasp on what Mark and Dean Baker have been saying all along: Health care is the real problem.
Why is the Payroll Tax Cut Tied to Social Security Anyway? Print
Written by CEPR   
Tuesday, 20 December 2011 13:00
Dean Baker has a column in The Guardian asking this very question. Under the law, Social Security is financed from its designated tax and therefore cannot contribute to the deficit unless Congress changes the law. However, the payroll tax credit in 2011, which was replaced with general revenue, is an exception to this rule. Dean asks that instead of linking the payroll tax credit to Social Security, "why not just give everyone a tax cut equal to 2 percent of their wages up to $110,000?" Dean concludes, "The only reason to tie the tax cut to Social Security is if the intention is to raise issues about the Social Security tax at some future point."
Letter to Sen. Mike Johanns on Social Security Trust Fund Print
Written by Dean Baker   
Monday, 12 December 2011 16:40
The Honorable Mike Johanns
404 Russell Senate Office Building
Washington, DC 20510-2705

Dear Senator Johanns,

After a recent vote on the extension of the payroll tax cut, you said "...the Social Security trust fund is filled with IOUs to begin with, and moving money around [to pay for the extension] will only make it worse." You went on to say that you would prefer direct payments to stimulate the economy rather instead.

I appreciate your position on direct stimulus checks and hope that more members of Congress consider this option. However, the idea that the Social Security trust fund is full of IOUs is not true. The recommendations of the Greenspan Commission in 1983 led to the growth of a large surplus in the Social Security trust fund that has since been used to buy U.S. bonds, widely considered to be among the world's safest investments. The government sold these bonds to the Social Security trust fund, just as it sells bonds to individuals and private corporations every day of the week. Just as with any funds that come from the purchase of bonds, the money is borrowed by the government, but repaid at the end of the term of the bond. While any bond can be called an “IOU” this is not the normal term used in either business or political discussions. By referring to the government bonds held by the trust fund as IOUs you are misleading your constituents and others who hear your comments.

While it is commendable that you recognize the need to further stimulate the economy, I hope you and your staff will have the opportunity to further review the design and finances of Social Security as you prepare future public statements on the topic. If you would like any additional background on the program, I would be happy to assist you.

Let's Turn Samuelson's "Cut Social Security" Rant into a Game Print
Written by CEPR   
Tuesday, 22 November 2011 10:00
Washington Post columnist Robert Samuelson wants to know why the supercommittee isn't cutting Social Security and Medicare benefits. After all, "... these 'entitlements' are the central cause of long-term budget deficits" and "[f]rom 2005 to 2035, their cost will nearly double as a share of national income," writes Samuelson. Over at Beat the Press, Dean Baker notes that yes, Medicare costs are expected to greatly increase over the next two decades, but the same is not necessarily true for Social Security. So if you bundle Medicare together with any program (Dean suggests "national park maintenance") you can make it look like that second program is also experiencing explosive growth. Give it a try in the comments below!
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