Editore"s Note
Tilting at Windmills

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February 16, 2011

NOT ALL ENTITLEMENTS ARE CREATED EQUAL.... When policymakers talk about "entitlement reform," they're generally referring to several massive programs: Social Security, Medicare, and Medicaid. When the discussion shifts to long-term fiscal challenges, all three tend to be lumped together.

That's a mistake. Indeed, at yesterday White House press conference, the AP's Ben Feller noted in his question "the the long-term crushing costs of Social Security, Medicare, Medicaid -- the real drivers of long-term debt." President Obama emphasized an important distinction between them.

"The truth is Social Security is not the huge contributor to the deficit that the other two entitlements are. I'm confident we can get Social Security done in the same way that Ronald Reagan and Tip O'Neill were able to get it done, by parties coming together, making some modest adjustments. I think we can avoid slashing benefits, and I think we can make it stable and stronger for not only this generation but for the next generation.

"Medicare and Medicaid are huge problems because health care costs are rising even as the population is getting older. And so what I've said is that I'm prepared to work with Democrats and Republicans to start dealing with that in a serious way. We made a down payment on that with health care reform last year. That's part of what health care reform was about. The projected deficits are going to be about $250 billion lower over the next 10 years than they otherwise would have been because of health care reform, and they'll be a trillion dollars lower than they otherwise would have been if we hadn't done health care reform for the following decade."

I'm glad he reminded reporters about this, because I get the sense it's a point the media often forgets. As Greg Sargent noted, the president was arguing "that Social Security does not belong in the same camp as deficit-busting programs like Medicare and Medicaid." They're just "not in the same category."

It's often left out of the debate, but the truth is, Social Security is in pretty good shape. Its long-term finances could be improved even more with some minor tweaks that most folks probably wouldn't even notice, but there's no crisis, the system isn't going bankrupt, and if policymakers decided not to do anything for a while, that'd be fine, too. Kevin Drum had a good post on this overnight.

The weird thing about this is that Social Security isn't even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic.... Right now, Social Security costs about 4.5% of GDP. That's going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.

That's it. That's the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so. And if we do something in the middle, then taxes will go up, say, 1% of GDP and benefits will drop to about 92% of their promised level. But one way or another, at some level between 75% and 100% of what we've promised, Social Security benefits will always be there.

This is not a Ponzi scheme. It's not unsustainable.... [S]hort of some kind of financial apocalypse -- in which case we've got way bigger things to worry about anyway -- Social Security benefits will be there for everyone alive today. Why is it that so few people seem to get this?

I guess because they're desperate to privatize, so they delude themselves into accepting falsehoods?

Medicare is facing fairly serious fiscal problems; Social Security isn't. The more the president reminds folks about this, the better.

Steve Benen 8:35 AM Permalink | Trackbacks | Comments (32)

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Comments

Do we really need to hear the Ronald Reagan/Tip O'Neill Village mythology trotted out again and again? I guess Barry is getting absorbed into the borg faster than I thought.

Posted by: Lee Gibson on February 16, 2011 at 8:37 AM | PERMALINK

Politics 101
First lesson
Never let facts get in the way of a good story baby .

Posted by: FRP on February 16, 2011 at 8:41 AM | PERMALINK

"I'm glad he reminded reporters about this, because I get the sense it's a point the media often forgets."

Is that they forget, or that they're willfully mendacious?

And if they forget, are they really that stupid, and if they are, how do they manage to hold down jobs as "reporters?"

Posted by: c u n d gulag on February 16, 2011 at 8:44 AM | PERMALINK

If you start from the Republican premise that people should fend for themselves, and others should not be forced to pay for their health, welfare, or retirement, then the Social Security, Medicare, and Medicaid programs should be abolished. Even if Social Security is fully funded by the recipients, it is a forced payment system that Republicans think is nobody's business. I think that reasoned discussion about entitlements must begin with a discussion about this Republican premise, because otherwise the sides are just talking, and propagandizing, past each other.

Posted by: Keith on February 16, 2011 at 8:52 AM | PERMALINK

"They delude themselves into accepting falsehoods."

No, Steve, they're hoping to delude US into accepting falsehoods.

Posted by: pol on February 16, 2011 at 8:58 AM | PERMALINK

When the discussion shifts to long-term fiscal challenges, all three tend to be lumped together. That's a mistake.

No it isn't -- it's a deliberate lie to justify using the financial difficulties of Medicare and Medicate to fulfill the conservative goal of cutting Social Security (which has a dedicated funding stream) as well. Politicians who lump them together are simply lying, and reporters who follow suit are dupes at best.

It's of a piece with the same pack of liars using the term "weapons of mass destruction" to conflate old mustard gas shells that posed no threat to the United States with the scary specter of nucelar weapons in order to justify attacking Iraq.

Posted by: Gregory on February 16, 2011 at 8:58 AM | PERMALINK

It is hard to have a productive or rational discussion with a group that suffers from short and long term memory loss , or the paid to be stupid Corp American Press . It is also , according to my Upton Sinclair notes , very difficult to understand something your paid to present without critical bits , the critical bits which make nonsense out of said paid sense .
Discussing the facts against a political party that makes political hay out of the illusion of a Ponzi scheme for a fully funded mandate ain't gonna happen until ,

They .

Stop .

Lying .

Posted by: FRP on February 16, 2011 at 9:02 AM | PERMALINK

You got it, Keith, but Republicans aren't going to make their case head-on, because they'd lose. Even after many years of disinformation and scare-mongering they still can't get the American public on-board with destroying SS (beyond the usual 20% of wingers).

But their backers (Peterson, Koch, Scaife, etc) aren't going to let them do a deal with Obama to "strengthen"/"stabilize" SS. They have to undermine the system, set it on course for destruction. My guess is that they'll go for "means testing", and try to make that process as intrusive and complicated and arbitrary as possible. Make the SS administration into a hated enforcer and bearer of bad news, like the IRS. It won't save any money, of course, but will cut support for the system over time.

Posted by: ElegantFowl on February 16, 2011 at 9:09 AM | PERMALINK

A number of us raised this very point yesterday - the dems need to stop thbudget cuts are loomin gand everyone agrees that "social security" needs to be cut.

While I am sure that this lie is propagated knowingly by the Boner-Cantor-Ryan-Koch folks, there have been some interesting stories about how many of the new congressfolsk are clueless as to how government works - not knowing about appropriations vs. authorization; not understanding the basic budget process; not understanding the structure of the budget. There were many clues to this in the election, but of course, much of this ignorance was, well, ignored, by the press.

So take willfull lying + congressional ignorance+lame media and voila = "social security is part of the problem" meme ....

Posted by: bigtuna on February 16, 2011 at 9:09 AM | PERMALINK

I assumed the attack on SS is simply the budgetary reality that the government will have to pay back the "trust fund" bonds it issued in the first place. Yes, it's the law, but there are a lot of wars that can't be fought, or tax cuts for the rich that can't be enacted under the current scenario. How convenient if we simply declared a "crisis" instead.

Posted by: walt on February 16, 2011 at 9:10 AM | PERMALINK

Why is it that so few people seem to get this? Because reporters ask questions like Ben Feller does and reporters like Ben Feller, representing very large (and increasingly irrelevant) news organizations like AP refuse to even mention the simple solution to Social Security funding shortfalls beyond 2037....a measure favored by TWO-THIRDS of American voters....

"Raise the cap on the amount of annual income subject to SS taxation from the present limit of $106,000."

See how simple?....the well-off pay a little bit more....the very very well off pay a great deal more but not an amount that has any serious impact on their condos in St. Barts and private school for their kiddos.....and the whole system is solvent until close to the end of the century when, as noted, as the baby boom goes away, system needs stabilize at about 6% of GDP.

Instead we get noble saviors of our system like Paul Ryan and Rand Paul wailing that we are "all going to die" unless we raise the retirement age to 70 (or 75...we just do it over a few years to ease the pain of course) and cut (slash) benefits.

Posted by: dweb823 on February 16, 2011 at 9:10 AM | PERMALINK

Social Security gets lumped in because many politicians don't want to have to pay back the loans they took out of the SS Trust fund to pay for other projects (umm, like Bush tax cuts?). Like Dumbya said, those IOU's, which most intelligent people call "bonds", are "just made of paper".

(Psst...Georgie...so is money!)

Posted by: Stetson Kennedy on February 16, 2011 at 9:11 AM | PERMALINK

As I mentioned over at Kevin's blog, he forgot one other way to tweek Social Security -- raise the or eliminate the cap.

Personally, I would love to see people who get multimillion dollar annual bonuses pay full Social Security taxes on them, and for their employers (the ones that pay them the bonuses) have to pay the full match. Currently they pay nothing as they already make above the annual cap and are therefore paid up for the year when the bonus come around.

I don't know if it would do as much as raising the tax 1%, but it sure would go a long way symbolically.

Posted by: martin on February 16, 2011 at 9:13 AM | PERMALINK

Reagan's solution was to raise FICA taxes, so we could fund government through worker contributions rather than income taxes on the wealthy. Now the argument is that that money is already spent, so we can't afford all these workers at retirement.

Posted by: Danp on February 16, 2011 at 9:18 AM | PERMALINK

Looks like dweb823 got to it while I was typing.

Posted by: martin on February 16, 2011 at 9:23 AM | PERMALINK

One would think that someone so acclaimed for his speaking abilities would have simply said, "Social Security is NOT a contributor to our defict". The President, implied, that it is a smaller contributor than Medicare and Medicaid.

However, martin is correct. The cap should be raised significantly.

Posted by: berttheclock on February 16, 2011 at 9:36 AM | PERMALINK

GOP want Privatization so Big Money will get richer. That's pretty much it in a nutshell. Anyone who's ridden the Wall Street rollercoaster over the years knows dedicating your retirement to stocks is a recipe for a Cat Food Nation.
Rich people aren't too concerned with funding their retirement. Which is why the GOP is also completely against the simple fix for SocSec, upping the cap from $106k to say, $150k. Most folks wouldn't be affected at all. But Rich GOP interests would and they'll fight a rise to $107K as hard as a rise to $200k (where it should be).
SocSec doesn't really have major problems that tweaks such as a modest raise in the limit couldn't fix. And it is NOT an entitlement..we're all paying our tax into it and deserve the payout when the time comes. We are being sold a bill of goods on SocSec by the Corporate Media and GOP. I'm glad Obama is at least trying to set the record straight.

Posted by: T2 on February 16, 2011 at 9:41 AM | PERMALINK

No cap!
Period!!!

Why should someone making less than $106,000 pay the 6% (now less for 2 years) of their total gross salary, but when it comes to millionaires and up, it works out to a far, far smaller percentage of gross income?
That's a joke.
On the rest of us...

Posted by: c u n d gulag on February 16, 2011 at 9:50 AM | PERMALINK

In the 1980's, Saint Ronald of The Raygun and Mr. Andrea Mitchell fixed social security forever by raising retirement ages and social security payroll taxes to over collect and build up a Trust Fund for the future. Statistically, these actions had the effect of lower benefits by 17-22%, depending upon which study is reviewed. The over collected money is a part of "Intragovernmental Holdings" and not bonds held by individuals, companies, or countries.

The Social Security Trust Fund Explained

As of December 2008, approximately $2.4 Trillion of the $4.3 Trillion in “Intragovernmental Holdings” was held in the Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund.

The Social Security system was pay-as-you-go. Both the employee and the employer pay 6.2% of gross compensation up to a limit of $102,000, making the total Social Security tax 12.4%. By the early 1980’s the Social Security system needed reform and increased funding.

In 1983, Alan Greenspan chaired The National Commission on Social Security Reform which resulted in the 1983 Amendments to the Social Security programs. The 1983 Amendments excluded the Social Security Trust Fund from the unified budget.

As a result of the tax increases instituted by the 1983 Amendments, over the last 25 years the Social Security system has collected more taxes than it has paid out. Excess Social Security receipts are “invested” in special securities issued by the federal government. These securities are held in the (OASDI) Trust Fund. The Social Security receipts that are exchanged for these special Treasuries have been spent by Congress on general budget items over the last 25 years.

It is currently projected that Social Security tax receipts will exceed Social Security payments until 2017. In other words, the amount of Treasuries held in the Trust Fund will keep increasing for the next seven years. In even more words, payroll tax receipts will exceed Social Security payments for the next seven years.

In other words, the American workers (prior to this recession) have been paying more in SS taxes than have been paid out.

The reason that the repukes want to lump social security with medicare and medicaid is to provide confusion and misdirection about what actions really need to be taken to provide long term financial solvency for social security. That and they would like to default on the 'bonds' of the Social Security Trust Fund.

THE ONLY ACTION NEEDED TO ASSURE SOCIAL SECURITY SOLVENCY IS TO RAISE THE AMOUNT OF INCOME THAT IS SUBJECT TO PAYROLL TAXES!

Posted by: AngryOldVet on February 16, 2011 at 10:05 AM | PERMALINK

Simple question: In conjuction with modest payroll tax increases, why not raise the retirement age by a year or two? Average life spans have increased over the decades and so have workers' ability to work longer.

Posted by: Concerned on February 16, 2011 at 10:08 AM | PERMALINK

Simple question: In conjuction with modest payroll tax increases, why not raise the retirement age by a year or two?

Because some people earn their living thru physical labor, and a longer life span doesn't mean their bodies wear out any slower, that's why not.

Posted by: Gregory on February 16, 2011 at 10:14 AM | PERMALINK

And to echo Gregory - - this is a fundamental peg that EVERY democrat should hang on. SS was created EXACTLY for that kind of working person, and Dems to their last raspy dying breath should hold the line on retirement age - - - this is to me a fundamental.

Posted by: bigtuna on February 16, 2011 at 10:19 AM | PERMALINK

You guys don't get it, do you? Of course politicans from both sides of the aisle lump SS with Medicare/Medicaid. It's a feature, not a bug. Both sides know that a couple of tweaks to SS will give the gov't a big increase in revenue without selling the public a new tax.

And they can use the revenue to help pay for Medicare/Medicaid - two programs no one wants to tackle, not yet at least. The health care reform fight was just a sideshow compared to what real Medicare reform would look like.

In the meantime, politicians want another SS fix, like the fix back in the 1980s that increased SS revenues and decreased SS payouts, leaving the government with a nice steady stream of income.

Posted by: Schlocky Balboa on February 16, 2011 at 10:29 AM | PERMALINK

I don't think Republicans are lying as much as they just aren't particularly knowledgeable about policy. They tend to lump all entitlement programs together in their minds.

Posted by: DRF on February 16, 2011 at 10:45 AM | PERMALINK

Average life spans have increased over the decades and so have workers' ability to work longer.
Posted by: Concerned on February 16, 2011 at 10:08 AM

*Average* life spans have increased, yes. But, when you dig into it, you'll see that the average has increased, because the desk-riders' life spans have increased a lot, while laborers' not at all. It's like that old joke about a janitor and Steve Gates being in a bar at the same time -- their *average* income is in millions. Doesn't mean that each of them earns millions, though.

Even with the "desk riders" there's a limit. Most of the body can be kept in great shape but the brain is harder to keep going; we just don't know enough about it to tweak it.

Posted by: exlibra on February 16, 2011 at 12:17 PM | PERMALINK
Why should someone making less than $106,000 pay the 6% (now less for 2 years) of their total gross salary, but when it comes to millionaires and up, it works out to a far, far smaller percentage of gross income?

Contributions are capped because benefits are capped, and Social Security is notionally a contribution-based defined-benefit pension program, not a welfare program. To maintain the logic of the program, uncapping contributions should be accompanied by uncapping benefits (that doesn't mean that all contributions have to produce the same marginal amount of benefits; currently, SS uses a three tier system where each step up produces lower marginal benefits, so a fourth tier could be created, with, say, an 8% factor [the current factors are 90%, 32%, and 15%].) Given the lag between making contributions and claiming benefits, this would clearly improve solvency in the near term, but could (depending on the formula) exacerbate any actuarial problem in the long term. Since Social Security benefits are already taxed income for high-income individuals, one could mitigate the impact of this even in the long run (at the expense of general fund revenue) by dedicating the marginal income taxes due to taxation of Social Security benefits back to the Trust Fund, rather than leaving them in the general fund.

Posted by: cmdicely on February 16, 2011 at 12:28 PM | PERMALINK

Simple question: In conjuction with modest payroll tax increases, why not raise the retirement age by a year or two?

That would just add thousands of seniors to the unemployment lines. When corporate America starts hiring Americans and not discriminating against 60+ applicants and the unemployment rate is <4% and the healthcare system extends lifetimes across all classes, then we can talk about that. Right now, we should be lowering the retirement age.

Posted by: ElegantFowl on February 16, 2011 at 12:41 PM | PERMALINK

Average life spans have increased over the decades and so have workers' ability to work longer. ---- Posted by: Concerned
-----------
and then there's this: ScienceDaily (Mar. 12, 2008) — It's no secret that over the last few decades, life expectancy in the United States has been rising. However new findings from Harvard Medical School and Harvard University demonstrate that individuals with more than 12 years of education have significantly longer life expectancy than those who never went beyond high school.

http://www.sciencedaily.com/releases/2008/03/080311081149.htm

Posted by: dj spellchecka on February 16, 2011 at 1:45 PM | PERMALINK

Take it first from the poor and the old, but don't raise taxes on the rich, whatever you do. I will never again vote for a Democrat who doesn't take care of first things first. First on the agenda is NOT taking from the poor and the old. This whole country feels like a nightmare. I keep thinking I'll wake up and all those crooked politicians (and I mean ALL of them) will have gone away.

Posted by: CDW on February 16, 2011 at 2:11 PM | PERMALINK

Hot Air: Failing to Grasp the Social Security Problem
http://hotair.com/archives/2011/02/16/failing-to-grasp-the-social-security-problem/

Posted by: StewartIII on February 16, 2011 at 7:58 PM | PERMALINK

So this is a bit of a dated post that I did 3 years ago, but it is taking data straight from David Walker, previously from GAO and later with the Peter Peterson foundation.

My favorite point is that in 2007, looking at the data over the same time frame (75 years?) Social Security is $6.8 trillion short and Medicare Part D (drug benefit) is $8.4 trillion.

As for the ponzi scheme claim. Social Security program is an insurance program. We all pay our private premiums even if we don't have a claim, isn't that a ponzi scheme then?

Posted by: EndTheEcho on February 16, 2011 at 9:16 PM | PERMALINK

"Ponzi Scheme" is sloppy shorthand. You label it such and you're done thinking. It appeals to teh intellectually lazy.

What sucker would buy in t a Ponzi scheme that:
1) Took your money for forty+ years before paying anything back
2) Told you outright, if you die before 65, you get bubkis.
3) Promised you an adequate money supply for life, but by nobody's opinion, generous.
4) Promised that same scant payout if you got so incapacittated that you couldn't work.


I mean,... who finds THIS the equal of a get-rich quick scheme.

Ponzi scheme promise huge payouts to all investors. My father, for example, got one year of benefits before he died. He gt SCREWED, but he was a big Social Security fan. (As it happens, survivor benefits have helped my mother out a fair amount for 14 years, thus far. Thank you, fellow FICA taxpayers.)

Posted by: toowearyforoutrage on February 17, 2011 at 10:33 AM | PERMALINK




 

 

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