The Old "Social Security and Medicare" Trick

[Dardedar]

DAR
A good summary of this issue:

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The Old "Social Security and Medicare" Trick
By Dean Baker
t r u t h o u t | Perspective

Wednesday 04 October 2006

As every informed person knows (except those who get their information from PBS, NPR, the Washington Post or some equivalently shoddy news source) the Social Security system is fully funded for decades into the future. The program is supported by a designated tax, which together with interest on the government bonds held in the Social Security trust fund, is producing a surplus of almost $200 billion in the current fiscal year. The most recent projections from the Congressional Budget Office show that the program can pay all promised benefits for the next 40 years, with no changes whatsoever .

Even after 2046, when the program is first projected to face a shortfall, it would still have sufficient funding to pay a benefit that is almost 20 percent higher (adjusted for the cost of living) than what current beneficiaries receive. The tax increase that would be needed to keep the program fully solvent for its 75-year planning horizon is only about half the size of the costs of the wars in Iraq and Afghanistan.

These are the undisputed facts about Social Security. Given the immense popularity of Social Security and its incredible efficiency (its administrative costs are less than 1/20th the size of private sector pension plans) there is little reason to talk about cutting or privatizing the program.

Since the opponents of Social Security cannot argue against it based on the facts, they use tricks. One of the most popular is to combine Social Security with Medicare and Medicaid as "entitlements" and then complain about the "entitlement crisis." This is exactly the route chosen by Washington Post columnist Sebastian Mallaby in a recent column ("A Party Without Principles," October 2, 2006; A19).

This is a neat trick. There is a serious problem with Medicare and Medicaid. Their costs are projected to double as share of the economy over the next 30 years. This is not because of any problems specific to these government programs, it is due to the fact that health care costs in the United States, in both the public and private sectors, are projected to hugely outpace the overall rate of economic growth over this period.

Soaring health care costs are a problem unique to the United States. We pay more than twice as much per person on average as people in other wealthy countries, yet we rank at the bottom in life expectancies. The reasonable response to the crisis in the US health care system would be to try to design a system that is comparable to the more efficient ones elsewhere.

But, Mr. Mallaby is not interested in an honest solution to the country's problems; he is interested in gutting the Social Security program. So he whines about exploding entitlement costs, and then attacks the integrity of the Democrats for not wanting to cut Social Security. Unfortunately, this behavior is the norm in Washington policy debates, and certainly at the Post, where the paper does the same trick with regularity in its editorials.

There is a large constituency among the elites for cutting Social Security. The financial industry will make a fortune if can get its hands on the money. The system is progressive, with lower income people getting a better return than higher income people. For this reason, many of the relatively highly paid professionals who make policy and write newspaper articles correctly believe that they could do better if they invest their Social Security taxes themselves.

Of course ideological conservatives hate Social Security because it is a model social program. It does exactly what it was supposed to do - it provides workers with retirement security as well as insurance against disability and early death. People who hate government social programs naturally want to kill one that is so successful.

So, you can expect to see many more Social Security crisis stories. When you read them, remember that these people have an interest in pushing a phony bill of goods, and treat their stories as the fiction they are. Just like a cheap horror movie, their scare stories won't hurt you, unless you start to take them seriously.

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Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org).

[Barbara Fitzpatrick]

I always want to smack the ones who call Social Security an entitlement program. Anything you pay into is not an entitlement program. Nobody calls a MetLife life annuity an entitlement program. Now Medicaid is an entitlement program, based on need. If Social Security was an entitlement program, the benefit would be based on need and not on input. Actually, this little shell game (combining Social Security and Medicare) to prove the program is going down the tube is the reason you now see what used to be lumped together as FICA divided into the Social Security contribution and the Medicare contribution.

Baker left out a reason for why the Rs hate Social Security and have been trying to destroy it since it passed in 1933 - employers, mostly Rs, have to match the retirement benefit contribution. They may or may not offer any other kind of retirement program (and may or may not steal the funds from it), but they have to offer this one - and they don't get to play with the funds.