The Common Sense Primer on the Deficit and the Economy – Part 4
(In today’s installment of the Common Sense Guide to the Great Deficit Debate & The Future of Our Economy reader Bruce Schmiechen, who has the blog The Titanic Sails at Dawn, focuses on how Social Security is not causing deficits, and how long term funding problems for Medicare are due to rising private sector health care costs. Part 1 of the Common Sense Guide is available here, Part 2 is available here, Part 3 is available here, and the complete document can be found at Bruce’s blog.)
ATTACKING SOCIAL SECURITY
We constantly hear in the media that Social Security is “in crisis,” but as Princeton University economist and N.Y.Times columnist Paul Krugman notes:
Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.
Meanwhile, an aging population will eventually (over the course of the next 20 years) cause the cost of paying Social Security benefits to rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P. To give you some perspective, that’s a significantly smaller increase than the rise in defense spending since 2001, which Washington certainly didn’t consider a crisis, or even a reason to rethink some of the Bush tax cuts.
The truth is that Social Security is better funded into the future than any other federal program in our history. According to the most recent projections of the Congressional Budget Office, Social Security will be able to pay full benefits through the year 2044 with no changes whatsoever. And any shortfalls that might possibly occur decades from now are a small part of the overall deficit problems.
To bring the picture of assault on the middle class full circle, former Labor Secretary Robert Reich has traced any actual prospect of future shortfalls in Social Security funding directly back to the growth in income inequality:
“Back in 1983, the ceiling was set (in a deal forged by President Reagan and a Democratic Congress) so the Social Security payroll tax would hit 90% of all wages covered by Social Security… Today, though, the Social Security payroll tax hits only about 84% of total income…because a larger and larger portion of total income has gone to the top. In 1983, the richest 1% of Americans got 11.6% of total income. Today, the top 1% takes in more than 20%.”
The simplest way to resolve any future concerns about paying full social security benefits would be to tax all incomes equally – social security taxes are capped at $106,800. Which means that someone earning a million dollars per year pays the same amount of social security tax as someone earning $106,800. That’s a tax rate for millionaires of a just a bit over 10% of the Social Security tax rate paid by anyone making $106,800 or below. Lift the cap on taxable Social Security income, equalize the rates across the spectrum – “working poor” to middle class to wealthy – and the Social Security “crisis” (mostly a hype by those who want to privatize or greatly diminish the program) would either disappear or become easily manageable. Statistics about increasing average life-expectancy mask the reality that people engaged in strenuous occupations where working to 70 is not a reasonable option are among those most reliant on Social Security to provide sole income in their old age. Nor do these folks’ life expectancies track the “average” – they are shorter.
WHAT ABOUT MEDICARE? IS HEALTH CARE UNAFFORDABLE?
The worst news regarding long-term deficits is overwhelmingly in projections of growing health care costs that radically outpace any other area of potential inflation. According to the Center for Economic and Policy Research:
Through Medicare and Medicaid, the government pays for approximately half of the country’s health care, almost all of which is actually provided by the private sector. Thus, the bulk of our projected rising budget deficits are due to skyrocketing health care costs… If our per person health care costs were the same as for any other wealthy country, then the U.S. would face huge surpluses in the long-run rather than deficits.
The above chart shows past federal spending and projected increases in federal spending as a percentage of Gross Domestic Product over the decades. Rising health care costs – which are even less restrained in the realm of private market insurers than they are in government-administered insurance programs – are the greatest threat to our nation’s future prosperity.
The health care reform legislation enacted by President Obama and Congressional Democrats was an important step toward extending coverage and gaining consumer control over our health care system, but it is critical that we not only defend Affordable Care’s reforms, but improve upon them substantially. It can be done. Models in other countries that provide high-quality universal coverage exist. This issue, not some generic hysteria about deficits, is critical and must continue to be addressed. Meanwhile, repeal of the Affordable Care Act would – according the non-partisan Congressional Budget Office – actually increase deficits significantly.
(Part 5 of the Common Sense Primer – focusing on how the Republicans’ “fiscal resposibility” proposals are scams that are aimed at building conservative political power, not cutting the deficit – will be posted on Monday, April 4)
Tags: budget, common sense primer, deficit, fiscal resposibility, health care costs, health care reform, Medicare, President Obama, Republicans, Schmiechen, Social Security
