NOT ALL ENTITLEMENTS ARE CREATED EQUAL…. When policymakers talk about “entitlement reform,” they’re generally referring to several massive programs: Social Security, Medicare, and Medicaid. When the discussion shifts to long-term fiscal challenges, all three tend to be lumped together.
That’s a mistake. Indeed, at yesterday White House press conference, the AP’s Ben Feller noted in his question “the the long-term crushing costs of Social Security, Medicare, Medicaid — the real drivers of long-term debt.” President Obama emphasized an important distinction between them.
“The truth is Social Security is not the huge contributor to the deficit that the other two entitlements are. I’m confident we can get Social Security done in the same way that Ronald Reagan and Tip O’Neill were able to get it done, by parties coming together, making some modest adjustments. I think we can avoid slashing benefits, and I think we can make it stable and stronger for not only this generation but for the next generation.
“Medicare and Medicaid are huge problems because health care costs are rising even as the population is getting older. And so what I’ve said is that I’m prepared to work with Democrats and Republicans to start dealing with that in a serious way. We made a down payment on that with health care reform last year. That’s part of what health care reform was about. The projected deficits are going to be about $250 billion lower over the next 10 years than they otherwise would have been because of health care reform, and they’ll be a trillion dollars lower than they otherwise would have been if we hadn’t done health care reform for the following decade.”
I’m glad he reminded reporters about this, because I get the sense it’s a point the media often forgets. As Greg Sargent noted, the president was arguing “that Social Security does not belong in the same camp as deficit-busting programs like Medicare and Medicaid.” They’re just “not in the same category.”
It’s often left out of the debate, but the truth is, Social Security is in pretty good shape. Its long-term finances could be improved even more with some minor tweaks that most folks probably wouldn’t even notice, but there’s no crisis, the system isn’t going bankrupt, and if policymakers decided not to do anything for a while, that’d be fine, too. Kevin Drum had a good post on this overnight.
The weird thing about this is that Social Security isn’t even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic…. Right now, Social Security costs about 4.5% of GDP. That’s going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.
That’s it. That’s the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so. And if we do something in the middle, then taxes will go up, say, 1% of GDP and benefits will drop to about 92% of their promised level. But one way or another, at some level between 75% and 100% of what we’ve promised, Social Security benefits will always be there.
This is not a Ponzi scheme. It’s not unsustainable…. [S]hort of some kind of financial apocalypse — in which case we’ve got way bigger things to worry about anyway — Social Security benefits will be there for everyone alive today. Why is it that so few people seem to get this?
I guess because they’re desperate to privatize, so they delude themselves into accepting falsehoods?
Medicare is facing fairly serious fiscal problems; Social Security isn’t. The more the president reminds folks about this, the better.