Walter Rhett

Wrong: CERP Answers Mitt Romney, NPR, John Kerry and Mitch McConnell on Social Security

In Perlo on August 19, 2011 at 1:41 pm
Letter to Mitt Romney on Social Security Comments Print
Written by Dean Baker
Thursday, 11 August 2011 16:25
Governor Mitt Romney
Mitt Romney for President
585 Commercial St
Boston, MA 02109

Dear Governor Romney:

While campaigning at the Iowa State Fair, you were asked by a member of the crowd if you support raising the cap on payroll taxes, so that the rich pay more into the system. You responded by saying “…When it comes to Social Security, Medicare, and Medicaid, the truth is that we need to make sure we can keep the promises we’re making to 20 and 30 year olds. You may say we should just raise everyone’s taxes. Do you know what the tax rate would have to be if we wanted to keep the promises we made? Right now those programs take a payroll tax out of earnings of 15.3 percent. That would have to rise to 44 percent. We’re not going to do that.”

Actually, according to the Congressional Budget Office, there is no need for an increase in Social Security taxes through 2038, a full 17 years after the last date you could possibly be in the White House. In 2050, when today’s 20 and 30 year olds will be in or near retirement, the combined Social Security and Medicare tax rate would be 17.3; in 2085, the tax rate would be 22.5 percent, assuming that no changes are ever made in these programs and their costs follow the trustees’ projections.

Neither of these rates approaches the 44 percent you mentioned at the State Fair. The necessary tax rate would be even less if the Social Security tax cap was set at 90 percent of wage income as suggested by the Greenspan Commission in 1983.

As a candidate for President of the United States whose decisions could have a tremendous impact on vital programs like Social Security and Medicare, I hope that you will be careful to present the facts more carefully in the future. If you would like any additional background on the program, I would be happy to assist you.

Best Regards,
Dean Baker
Co-Director
Center for Economic and Policy Research

National Public Radio Redoubles the Effort to Cut Your Social Security and Medicare

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Wednesday, 10 August 2011 04:35
AddThis

Wall Street investment banker Peter Peterson has pledged $1 billion to the effort to cut Social Security, Medicare, and Medicaid. Other Wall Street types are doing their part, as is National Public Radio.

They are doing a full court press now — things are really terrible, if you don’t give up your Social Security and Medicare, then the economy might collapse. (Oh yeah, the economy already did collapse because none of these people were troubled by the $8 trillion housing bubble, but don’t think about that.) Standard and Poor’s might have to downgrade the U.S. again, even if they can’t get their arithmetic straight. (Math is hard.)

NPR did its part yesterday with a piece that told us that the debt is not just that scary $14 trillion number that we all hear, it’s actually — stand back boys and girls — $211 trillion!!!!!!

Are you impressed? You should be. This is an extraordinary example of cesspool journalism that would even embarrass Fox News.

The piece gets from the debt number normally reported to $211 trillion by doing some unusual accounting (following a methodology developed by Boston University economist Lawrence Kotlikoff) and also hiding assumptions about exploding private sector health care costs. First, the calculation adds up all the Social Security and Medicare benefits that current workers are projected to receive and then assumes that no new workers pay taxes into the system.

This methodology would imply enormous deficits in these programs even if they were projected to be fully solvent forever, in the sense that current tax payments would always pay current benefits. The reason is that today’s workers will provide a smaller share of the tax revenue as more of them retire. It is unlikely that any of NPR’s listeners would be very scared if it told listeners that Social Security and Medicare would be fully solvent indefinitely, but applying the methodology from this segment it could tell listeners about tens of trillions of dollars in uncounted debt.

The other part of the story is that much of this $211 debt figure is driven by projections of exploding private sector health care costs. Medicare costs are projected to rise far more rapidly than the rate of economic growth in the projections used in this segment (albeit not in the Congressional Budget Office’s baseline or the Medicare Trustees projections) because private sector health care costs are projected to rise far more rapidly than the rate of economic growth. The projections in this segment imply that the cost of providing a Medicare equivalent policy for an 85-year old in 2030 will be $40,000 a year (in 2011 dollars) in 2030. The cost would exceed $100,000 a year (also in 2011 dollars) by 2080.

If private sector health care costs actually follow the path assumed in this segment’s debt calculations it would devastate the economy even if we eliminated public sector health care programs like Medicare and Medicaid. On the other hand, if U.S. health care costs were contained, like those in every other wealthy country, then there would be no long-term deficit problem.

An honest news report would have discussed the projections of explosive private sector health care costs and what they mean for the economy if they prove true. It would not hide these projections in a huge debt figure and tell its listeners that the debt is much bigger than they realize.

The only possible point of a piece like this is to scare people. It provided no information whatsoever about the country’s fiscal situation to NPR’s listeners.

Letter to Senator Kerry on Social Security Comments

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Written by Dean Baker
Wednesday, 10 August 2011 13:25
The Honorable John Kerry
218 Russell Senate Office Building
United States Senate
Washington, DC 20510Dear Senator Kerry:

In a recent interview you said that our nation’s problem is one of “long-term debt.” You described this debt as “…the structural debt of Social Security, Medicare and Medicaid measured against the demographics of our nation. That then juxtaposed to the lack of jobs and job creation and growth.”

In reality, this is not the case. Social Security does not contribute to the debt in either the short-term or long-term. Under the law, Social Security can only spend money that was raised through the designated Social Security tax or from interest on the bonds purchased with this money. The latest projections from the Congressional Budget Office show that the program can pay full benefits through the year 2038 and slightly more than 80 percent of scheduled benefits in subsequent years.

However, this projected gap can only be made up by additional funding approved by Congress. If there are no legislated changes and this projection proves accurate, then less than the full benefit will be paid, and therefore Social Security will not be contributing to the deficit even in the years after it is first projected to face a shortfall.

While it is true that the lack of jobs and jobs creation is significantly impeding the growth of our economy, Social Security is not. And as the discussion over Social Security continues in Congress, I hope you and your staff will have the opportunity to further review the design and finances of the program. If you would like any additional background on the program, I would be happy to assist you.

Letter to Senator McConnell on Social Security Reform Comments Print
Written by Dean Baker
Tuesday, 09 August 2011 16:30
The Honorable Mitch McConnell
317 Russell Senate Office Building
United States Senate
Washington, DC 20510Dear Senator McConnell:

A recent article noted that you called for significant entitlement reform. You went on to say of Social Security that, “We have to adjust the trajectory of these very significant entitlement programs, or they’re not going to be there at all.”

With all due respect, this is not true. The recommendations of the National Commission on Social Security Reform in 1983 led to the growth of a large surplus in Social Security. This surplus was used to buy bonds and now Social Security holds more than $2.6 trillion in government bonds. As a result, the Congressional Budget Office projects that the program will maintain full solvency through the year 2038.

Even if Congress never makes any changes to the program, Social Security will be able to slightly more than 80 percent of scheduled benefits from then on. There is little to debate about this. A program that is fully solvent for a quarter century and then is more than 80 percent funded in subsequent decades hardly seems like a major problem that needs to be addressed in an economy with 9.1 percent unemployment. Furthermore, it is clearly inaccurate to say that it “not going to be there at all.”

As the discussion over Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of the program. If you would like any additional background on the program, I would be happy to assist you.

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