Social Security Is Not the Problem

August 14th, 2011 at 11:10 pm

This is one of these facts that you may have heard before but it bears repeating:

When people say, “the entitlements will bankrupt America,” they’re a) wrong, and b) not talking about Social Security, or at least the shouldn’t be.

The figure below, from CBO, show that as a share of GDP, neither Social Security nor other spending (which includes the discretionary spending that everyone’s all gung ho to slash away at) are driving government spending as a share of the economy.  It’s health care.  And as I’ve stressed every time this comes up, that’s not a gov’t problem—that’s just a problem.  In fact, health costs grow faster in the private than in the public sector.

Which is why I said “a” above is also wrong.  It’s not entitlements, it’s Medicare, Mcaid, etc.   And it’s not even those that will “bankrupt America.”  It’s health care spending system wide that must be brought under control.

Social Security has a funding shortfall too—about 0.8% of GDP over the 75-year horizon.  That’s just about equal to the revenue from the expiration of the high-end Bush tax cuts, and less than half from all the Bush cuts.  So please don’t tell me we can’t afford this guaranteed pension that provides more than half of their income to more than half of the elderly.

Source: CBO

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12 comments in reply to "Social Security Is Not the Problem"

  1. Robert Thille says:

    It seems to me that we will continue to spend more and more on higher and higher tech solutions to health issues until we decide “enough is enough.” When will that be? I don’t think that’s the issue. I think the issue is the efficiency of the solutions. If I could spend 40% of my income on healthcare, but it would keep my healthy and youthful forever, it’d be worth it. If I’m spending that same amount (or more!) and receive lousy outcomes, that’s the issue.


  2. C Heinz says:

    One of unsung heroes in the battle against recession is Social Security. The billions of dollars Social Security recipients have pumped into the economy since 2007 have been job savers. What would have happened to the economy without the Social Security stimulus?


  3. rjs says:

    social security has a 2.66 trillion dollar trust fund of US Treasury bonds: http://www.ssa.gov/cgi-bin/investheld.cgi

    who started the meme that other Treasury bondholders such as china & the banks should be paid back, but not the old folks?


  4. foosion says:

    Put another way, Social Security has enough money to pay 100% of benefits for about 25 years and at least 80% of benefits thereafter.

    As you note, ending the high-end Bush tax cuts would solve the possible problem. So would raising the cap on income subject to Social Security taxes.

    When the existing FICA cap was set, they estimated the percentage of national income that would be subject to the tax. As I understand it, a much larger percentage of national income goes to those making above that cap than was expected by those who set the cap, resulting in the possible funding shortfall.

    Healthcare spending is the real problem for this country. Shifting responsibility from the government to seniors, etc. does nothing to reduce costs. In fact it would increase total costs, because Medicare is cheaper than private insurance (if private insurance is even available). Any gain to the average taxpayer from reduced government spending on healthcare would be more than made up by increased spending by the average person.

    If we could reduce healthcare spending to the level of the next most expensive country, we wouldn’t have budget problems. If we could improve healthcare to the level of that country, we’d be a lot healthier.


  5. Geoffrey Freedman says:

    This is spot on. The two areas of spending that are most out of control are health care and our military budget.

    Health care is the underlying issue, not Medicare. If you look at other developed countries and their health care systems, they are all HMO or PPO type systems. Our fee for services system is incredibly expensive. All systems with cost effective systems have universal coverage (public or private based) and best/most effective practices that have preventative care (and a primary care physician at the center of care) as the basis for the health care system.

    Make no mistake, all of these systems, ration health care, but so do we. We just do it by income level.

    The system I looked at that I like the best is the one adopted by the Netherlands. Its part private, part public. Its universal. The funding is 50% employer, 45% public and 5% government. The public part is all the long term care issues. You get to choose your plan and (I believe) your doctor. I liked it because there don’t seem to be any waiting lists. Ther cost is slightly higher than some other developed nation health care systems but I thought the choice you have and the lack of waiting lists we worth the extra costs.

    The annual cost is $2800-$2900 per capita, the last I checked. Compare that to our costs ($7200-$7800 depending on what estimate you look at).


  6. marc sobel says:

    Charts like this are highly susceptible to being mis-interpreted based on the order in which the bars are stacked.

    If you did the order, social security, other, then medical etc. it would show the villain more clearly. You also might present the total social cost, i.e. we can always reduce government medical costs by making people pay more. That’s not a solution.


  7. robert says:

    Jared,

    The problem is that you are looking at Social Security only from the perspective of the general welfare of the public. If you look at it from the perspective of the FIRE sector, SS is a multi-generational threat. Just think of the potential profits that could be fleeced from the general public by Wall Street and the financial elite, if all wage earners could be forced to invest in all of those wonderful “life-time income stream” retirement products that would eventually replace SS.


  8. Will Neuhauser says:

    Of course, if we keep doing “payroll tax cuts” to provide “stimulus”, we can reduce the funding for SS and MC and create deeper problems that require deeper cuts ….


  9. Social Security: Principles, Facts, and Fixes | Jared Bernstein | On the Economy says:

    [...] folks talking about how entitlement spending is unsustainable, make sure they’re not including Soc Sec.  It is true that entitlement spending expected 10-16% of GDP over next 25 yrs., but about 1 ppt [...]


  10. Sylvia Dawn says:

    I love your wp design, where do you download it through?


  11. netsailer says:

    One issue that needs to be addressed is the level of Medicare reimbursement to providers and hospitals. My brother in law is a PCP and he says he has to limit the number of Medicare pts (and Medicaid, which reimburses at even lower levels) or he would go bankrupt. Another issue is defensive medicine; tort reform might help reduce the cost of the latter.


  12. Nancy says:

    The health care delivery system, unregulated Rx, Research, hospital corporations and niche physicians are what have driven up the cost of health care in America. Insurance companies will never be part of the solution as they are a pass through simply asking for more and more money to cover higher and higher costs coming to them from all the various venues. Why should machines rendering MRI’s and Cat Scan’s etc. continue to have an associated charge as though they just came off the assembly line. Whose going to tell the drug companies that they can no longer charge rates that incorporate in the research and marketing they feel they are owed….over and over and over again. Medicare/medicaid are downstream from all of this.Fraudulent claims are a drop in the bucket compared to the above drivers. By the time people are on Medicare/medicaid and Social Security roles, they are the most vulnerable populations and have no recourse if they are hit with a huge financial change.


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