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June 09, 2010

Medicare and Medicaid are NOT like Social Security

Greg Anrig

In an otherwise admirable New York Times article about how deficit fears have impeded an adequate response to persistently high unemployment, David Leonhardt writes: “The federal government has promised to pay out vastly more in Medicare, Medicaid and Social Security over coming decades than it will collect in taxes.” But grouping Social Security together with Medicare and Medicaid presents a highly misleading description of the nation’s fiscal challenge. And that conflation, which advocates of cutting social insurance programs have strategically promoted, has a lot to do with Washington’s misplaced priorities that the rest of the article insightfully analyzes.

Despite the severe recession, Social Security remains on strong financial footing. The program’s trustees project that it will be able to continue to pay out promised benefits in full until 2037, while the Congressional Budget Office predicts 2044. Over a 75-year time horizon, the gap between promised benefits and committed taxes is less than 1 percent of gdp. That’s a manageable shortfall that can be addressed through minor adjustments.

In stark contrast, expectations that health care costs will continue to rise much more rapidly than overall inflation are almost entirely responsible for the dire forecasts of deep budgetary shortfalls beginning in the 2020s. The recently enacted health care bill includes many changes targeted toward constraining those cost increases, particularly for Medicare. But because those provisions are essentially experiments that may or may not help, the gloomy forecasts remain in effect.

If it turns out that the reforms prove to be at least partially effective, the federal budget picture should commensurately improve. If not, more efforts will have to be undertaken to rein in those costs, while other changes will be needed to either raise revenues or cut spending. But there’s no reason why benefit cuts to Social Security need to be a significant part of that process. The program is highly effective and efficient, and  after growing very gradually from today’s 4.5 percent of gdp to around 6 percent of gdp after all the baby boomers retire, will hold steady at that level.

Other costly governmental activities outside of Social Security are nowhere near as demonstrably cost-effective, including elements of the defense budget, agricultural subsidies, and the panoply of tax breaks that primarily benefit upper-income households and particular industries. It’s long past time for reporters to stop accepting the premise that Social Security is an important contributor to the federal government’s long-term fiscal problems.             


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As Social Security's share of GDP increases from 4.5 to 6 percent, the over-65 population that is serves will increase from 20 to 40 percent. That sounds like a pretty good deal to me.


Thank you. Dave L. is a pretty good reporter, but he is way too susceptible to the seductions of the conventional wisdom. Keep reminding him what's what!


Social Security has over 2 Trillion dollars in surplus that were bought into treasuries earning yields.This is the first year that money collected is less than being paid for benefits.Saying that the Federal Gov't has no money to pay the Treasury Bonds is like saying every holder of our debt is screwed.


Cutting SS benefits after amassing $2.6T in the fund is the full equivalent to defaulting on a national debt. Since 1983 the Federal government has not been raising sufficient revenue to cover its ongoing operations. Most of the shortfall is due to reductions in tax rates to the wealthy and started with Reagan's reductions in marginal income tax rates as well as more recent capital gains and corporate tax rate carve-outs.

Online CPR

Reagan's "trickle-down" has slowly been breaking our bank.
It's time to re-instate old tax codes and pay as we go.


The Federal government has not been raising sufficient revenue to cover its ongoing operations.
Is that what Treasury Bonds are for? We asssume that the Govt spent the $2.6 Trillion and issued us Treasury Bonds and we are not getting paid for it.We owe China,Japan,Germany in bonds,they are getting paid.Did you hear any Bonds that were not paid so far when due? Dean Baker has a good comment about this http://www.cepr.net/index.php/blogs/beat-the-press/marketplace-pushes-tripe-on-social-security/

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