May 15, 2007
Social Security as Signifier
Over at Hotline-On-Call, Marc Ambinder pats Obama on the back for becoming "the first top-tier Democratic presidential candidate to acknowledge that Social Security deficits could not, and would not, be solved without pain." He also links to MSNBC saying "Experts say that to shore up Social Security, you either have to raise the retirement age, raise taxes, cut some benefits, or some combination of the three." Oy.
It's odd how acutely concerned the nation's pundits seem to be with Social Security's finances. Here's what the outlook is like for some of the main drivers of federal spending:
Look at that gentle slope for Social Security! You could do that in Rockports! Mt. Medicare and Medicaid, by contrast, require climbing gear. As the Center for Budget and Policy Priorities explains, "First, Medicare is by far the largest contributor to the overall growth in expenditures through 2050 because it bears the full brunt of both demographic changes and health care cost growth (and because it is a bigger part of the federal budget than Medicaid). Social Security contributes less to the growth in expenditures because it is not a health program — its per person costs do not grow faster than the economy." Seeking to restore fiscal stability by strengthening Social Security is akin to trying to cure cancer by treating nausea. It just ain't the problem. But because it's a cherished Democratic program, the press corps is quick to laud Democratic politicians willing to take it on. It's not the display of fiscal responsibility that excites the press, but the projection of independence. Which is fine, I just wish they were honest about it, rather than all this smoke and mirrors about Social Security.
Not to suggest healthcare reform isn't important or neccessary.
But why is it that revenue collection can't go to 28% if we need it to? The chart's title is a demonstration of its own built in assumption that federal revenues won't go up.
Posted by: ChrisB | May 15, 2007 9:11:35 AM
Which is fine
No, it's not fine. Republicans get lauded for their so-called independence when their rhetoric doesn't exactly match the Religious Right or the WSJ editorial page some of the time.
Democrats are only praised for their independence when they introduce or support actual legislation that attacks real programs and therefore will hurt real people.
I'm used to reporters not caring enough to know the facts, or to gloss over them as less important than the game. But Barack Obama is a US Senator running for President, presumably with access to all sorts of information and people in both his Senate office and campaign who can pull up the actual facts about Social Security on cue. Since the facts plainly show that Social Security is only in trouble from politicians such as himself, his statements about the program are disingenuous at best, outright lies more likely.
Posted by: Stephen | May 15, 2007 9:15:35 AM
I'm surprised more isn't being of the fact that Obama says he's open to raising taxes on the working poor. This to "fix" a system that ain't broken. Meanwhile, he's ruled out raising taxes on the rich beyond what they were in 2000. Does Obama think income inequality began with Bush?
So, we're been waiting for substantive differences between Edwards and Obama to crystalize. Here's one: Edwards is open to increasing taxes on the rich beyond what they were when Bush came in-as well as taxing oil companies for windfall profits--while Obama is open to raising taxes on the working poor.
Which do you prefer?
Posted by: davidmizner | May 15, 2007 9:15:48 AM
And that graph seems a bit odd with only the slight bump in Defense Spending. Are the authors of the graph expecting a post-Bush peace dividend and decline in Defense Spending?
Posted by: Tom - Daai Tou Laam | May 15, 2007 10:15:53 AM
This is smart by obama. He knows that a sizeable portion of the image conscious democrats are going to vote for him come what may. Ths gives him more room to appeal to saner democrats that clinton and edwards in particular are neglecting.
Posted by: henry hazlitt | May 15, 2007 10:36:35 AM
That graph is not at the link. Where does it come from?
Posted by: bloix | May 15, 2007 10:48:54 AM
Pathetic. We are all still living within the boundries of right wing approved thought
Posted by: Northern Observer | May 15, 2007 10:58:29 AM
Cumulative graphs suck.
Posted by: RickD | May 15, 2007 11:04:41 AM
Go to the end of the article. Click on: "The full text of this report is posted to: http://www.cbpp.org/1-29-07bud.pdf." Then scroll to page 6 of the pdf file.
I agree. Cumulative graphs are misleading, depending on how the data is stacked.
Posted by: Bruce | May 15, 2007 11:59:06 AM
Well, on reason for concern about Social Security might be that for most people, SS tax is their largest single tax.
Posted by: SamChevre | May 15, 2007 12:27:32 PM
You have to be very careful about such graphs. The slope of each program in this graph INCLUDES the slope of every program below it. Up until 2035, only SS and Medicare grow, and afterwards Medicare and Medicaid grow, and SS and everything else is constant. It would be far better to show the growth of each program individually as well as the overall budget.
Posted by: Eli Rabett | May 15, 2007 12:48:07 PM
Agreed, the first thing I noticed about your graph is that "Medicare" is the only category that changes much in thickness. (In fact "Defense" and "Other" thin out considerably post Bush)
Had you stacked Medicare on top, everything else would appear pretty much flat. The slopes are deceiving.
Posted by: Mikef | May 15, 2007 12:50:01 PM
I also think it would've been illustrative if the CBPP plot included the previous few decades for comparison.
I'm pretty sure that Defense has been the fastest growing expense under Bush, alone. They seem to think that that will stop. I'm not sure I agree.
Posted by: Mikef | May 15, 2007 12:55:51 PM
It has become accepted fact among the media elite that Social Security is in crisis. The Washington Post is particularly odious in this regard. Indeed, the state of things is so consistently misreported that younger people are often quoted as saying they don't expect to get anything from Social Security, which even in the worst case scenario would not be true, i.e. they would get approximately 80% of promised benefits.
The bottom line is that the program under normal growth scenarios can be preserved as it is without change. Even if growth is as sluggish as predicted in the Social Security Trustees' projections, the program remains fully solvent until 2041. The notion of needing to make immediate changes due to a contingency 34 years in the future is just silly. I have worked with pension plans for over twenty years and I can assure you that actuaries just don't have the ability to be that accurate that far down the road in a program as huge as this with as many economic and demographic changes as are likely to occur over the next couple of generations.
This is an ideological attack on a program that has been extraordinarily successful in promoting the independence and economic security of the elderly and the disabled. And it has done this with a level of administrative efficiency that is far superior to anything that the private sector can boast.
Don't buy the "need for sacrifice" bullshit on this one.
Posted by: Klein's Tiny Left Nut | May 15, 2007 1:05:51 PM
Obama has really turned into a big disappointment. His positions seem to increasingly look even to the right of Hillary. If these themes get pushed in the debates, I wonder what it does for him in the primaries? His support has seemed to decline a bit as his positions look more and more 'centrist'.
Posted by: Ricky | May 15, 2007 1:29:36 PM
Another reason to stay away from Obama. I'm not surprised. Any attack on Social Security, no matter how small, isn't centrist, it's caving to the radical Right who aim to destroy the program and will exploit any crack in the defense of it to do so. Nobody runnning for President as a Democrat should give any ground on SocSec. It's not a problem. There is no crisis. It's the most successful social program in the history of the country. Rinse and Repeat.
Posted by: eRobin | May 15, 2007 1:34:20 PM
I wouldn't jump all over Obama. What he *actually* said (and not Ambinder's interpretation of what he said) is very much in line with the graph posted by Ezra. Social Security is not in a crisis; the real problems are Medicare and Medicaid; some tweaks will ensure the stability of Social Security. This is from Obama's interview with Stephanopoulos:
"I don't want to lay out my preferences beforehand, but what I know is that Social Security is solvable. It is not as difficult a problem as we're going to have with Medicaid and Medicare."
The "let's get together" talk from Obama may be a little annoying, but the substance is not objectionable.
Posted by: anon | May 15, 2007 1:43:33 PM
Can someone explain to me why the Medicaid segment of the chart grows over time? Demographics should not impact it significantly since the dual-eligibles (i.e. the mostly-in-nursing-homes group that is either poor, or spent their life savings down on healthcare so that they became poor) now have most of their spending coming from the Medicare bucket, don't they? Is the suggestion that the CBPP expects there to be more poor people eligible for Medicaid in the future?
Posted by: Rick | May 15, 2007 2:09:13 PM
The notion of needing to make immediate changes due to a contingency 34 years in the future is just silly.
The Social Security reforms that passed in 1983 as a result of the Greenspan Commission report included a phased increase in the normal retirement age (then 65) to 67. The phase in would not even begin until 2003 and will not be completed until 2027 or 44 years after the legislation passed! The reason for the long phase in, of course, is to give people as much time as feasible to adjust their financial plans to reflect the rules changes.
To suggest that we don't have to do anything until the accounting balances in the Social Security Trust Fund reach zero in 2041 is both silly and irresponsible. Are you suggesting it is OK to just wait for the fund to run dry and then suddenly cut benefits by 27% or so to match incoming payroll taxes? Even the AARP recognizes that at least some program modifications and adjustments are needed. If we deal with them sooner rather than later, the tax increases and benefit cuts will not have to be as severe to put the program on a sound financial footing.
Medicare is, of course, a far bigger challenge, but I'll leave that discussion for another time.
Posted by: BC | May 15, 2007 2:12:29 PM
Where did Obama say he would raise taxes on the poor?
The easiest way to raise SS taxes is to raise or even eliminate the cap without changing the rate. If you eliminate the cap all together you could probably lower the rate, which would be a pretty nice tax cut for the working poor.
Posted by: Eric | May 15, 2007 2:14:06 PM
Because medical costs are going up so fast. Medicare goes up steeply becasue of demographics and increases in medical costs. Medicaid goes up from the cost increases.
Posted by: Eric | May 15, 2007 2:16:31 PM
Confusing topic post and responses. What that Obama or even Ambinder said is wrong? The fact that Medicare and Medicaid are bigger problems doesn't entail that Social Security isn't also an important problem that needs to be dealt with sooner rather than later. And it will hurt. That's especially true if you don't buy the assumptions implicit in that graph that the projected benefits are sufficient.
Since the facts plainly show that Social Security is only in trouble from politicians such as himself, his statements about the program are disingenuous at best, outright lies more likely.
even in the worst case scenario would not be true, i.e. they would get approximately 80% of promised benefits.
And doesn't 80% of too little seem a bit of a problem? But that isn't the only problem. The projections that Social Security will remain "solvent" until 2041 are based on the money that has been borrowed from the fund being repaid by then. As I understand it, we aren't currently on track to do that; the rate of repayment (rather than further borrowing) required isn't currently budgeted. (That applies to some other liabilities as well.) That means taxes will have to be raised even to maintain the meager benefits we currently have, or possibly 80% of them.
Posted by: Sanpete | May 15, 2007 2:16:59 PM
What I am saying is that under more likely growth scenarios than the pessimistic ones being used today, there will not be any shortfall.
I am not advocating waiting until 2041 to see. I would suggest thought that getting within 10 to 15 years of that date makes a whole lot more sense. That is because the date of insolvency keeps getting slwoly pushed out and is likely to continue in that direction.
If you wanted to avoid cuts, but generate additional income to avoid possible insolvency, you could place a portion of the Trust Fund in the equity markets and let them grow over the next 30 plus years. Of course, this would mean an end to the Republican policy of using the surplus in Social Security to mask the huge deficits that the tax cuts (and the war) have caused. I don't think this is necessary, but it would be the logical approach if you actually think there is a problem.
Posted by: Klein's Tiny Left Nut | May 15, 2007 2:23:16 PM
"The projections that Social Security will remain "solvent" until 2041 are based on the money that has been borrowed from the fund being repaid by then...
"That means taxes will have to be raised even to maintain the meager benefits we currently have, or possibly 80% of them." ...Sanpete
Exactamundo. SS remains solvent only if the Trust Fund is repaid with increased taxes on the Elite. SS is not solvent, not safe, incredibly frigging politically difficult unless you think doubling the top quintile's marginal rates won't be a problem. AFAIK, only Mark Schmitt recognizes and accepts the political problem.
Class war. Obama chose his side. The hell with him.
Posted by: bob mcmanus | May 15, 2007 2:40:38 PM
"Are you suggesting it is OK to just wait for the fund to run dry and then suddenly cut benefits by 27% or so to match incoming payroll taxes?"
Yes, and in fact I quantified it. You can demonstrate that doing Nothing mathematically has been the optimum solution for each of the last 11 years.
Second you have to realize that promised benefits in 2041 are 160% in real terms of the equivalent one today and by what some of us call Rosser's rule 75% of 160% = 120% relative to today. A cut to a better benefit than my Mom gets that is 34 years out doesn't seem like much of a tragedy.
Third Social Security is currently curing itself. Year in and year out shortfall and depletion get shoved out (there was some retrograde in 2005-2006 due to some one-time changes in assumptions). This can be seen in the following chart:
Fourth the gap currently projected would call for a fix starting today of 1.95% of payroll. Not pleasant but for a worker making $20,000 only about a $1 day.
Fifth the No Economist Left Behind challenge of 2004 demonstrated that under standard Intermediate Cost assumptions private accounts wouldn't work anyway, the corollary being that growth that would make private accounts works saves the day anyway. After all anything above 2.0% productivity is all that is needed.
Nothing is a mathematically sound proven plan for addressing a crisis that the numbers suggest will never come.
All plans on the table suggest cutting my benefits for the entirety of my retirement (I'll be 84 in 2041) so as to let remaining retirees not suffer sticker shock. Friend that doesn't pencil out for just about anyone. So yep I propose the perfect plan given best available information in May 2007: Nothing.
Posted by: Bruce Webb | May 15, 2007 2:46:38 PM
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