Growth, Taxes, and Retirement Programs
There are a number of different ways to characterize the findings of the latest “trustees report” for Social Security and Medicare, but the bottom line is that at some point in the future taxes are going to have to be higher.
Right now we’re set to be buried under a torrent of health care cost inflation, which highlights the need for health care reform. Tweaking Medicare in isolation is unlikely to be the most effective approach since Medicare costs track private sector health care cost shifts:
That said, controlling health care cost growth through systematic reform is necessary but not sufficient. We’re not realistically going to get health care cost inflation down to zero. And even if we did, demographic shifts imply higher expenditures for Social Security, Medicare, and Medicaid. In other words, unless we radically scale back our commitment to providing a secure and dignified retirement for senior citizens, some of this will have to be done on the tax side.
Meanwhile, note that the trustee’s report suddenly looks a lot worse because of the recession. That’s because even though these trends are driven by health care economics and demographic changes, they’re also quite sensitive to questions about economic growth. A relatively small boost in the growth rate, if sustained over time, makes our existing commitments much more affordable. One lesson of this is that even revenue-neutral tax reforms—efforts to curb deductions and loopholes in exchange for lower rates—can help a lot with this program. Another lesson is that when the time does come to talk about tax increases, it’s important to focus on tax increases that are economically efficient. Evidence suggests that the administration’s proposals to limit deductions for high-income taxpayers fit this bill as do some of the ideas about taxing public health hazards that have been vaguely leaking out around the Hill. But a broader, deeper, more fundamental reform would be highly desirable during these next few years before we shift into a higher tax equilibrium.
37 Responses to “Growth, Taxes, and Retirement Programs”
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May 13th, 2009 at 11:49 am
While it’s true that Medicare costs track private health care costs, I don’t think this necessarily means that Medicare reforms are of limited effectiveness. I actually think a lot of the causation goes the other direction: that is, private insurers base their reimbursement to a significant extent on Medicare policy, therefore effective reforms to Medicare can have a ripple effect across the health care system.
May 13th, 2009 at 11:56 am
It takes a committed reactionary to label the transfer of wealth to the age demographic with the highest median net worth, in good part from people with much lower median net worth, as…
” unless we radically scale back our commitment to providing a secure and dignified retirement for senior citizens,….”
Yeah, failing to transfer wages from people who have no assets, and are earning, say, 25 thousand a year, to healthy people who have a pension and a net worth of 500k (to say nothing of the healthy old millionaires) would be such a brutal assault on dignity. The Horror!
May 13th, 2009 at 11:57 am
I forget who it was who pointed out that all signs are pointing towards mass euthanasia for the aging, sickly boomers.
Point #2 is that the purveyors of high-carb manufactured foods and high-caloric-density cheap fast foods are going to have to be leashed, free-speech and free-market concerns be damned; otherwise the mass euthanasia is going to become an ongoing event. We cannot provide advanced diabetic care for 1/3 of the population cohort. We cannot allow free-market ideology to permit continued destruction of American’s health on a massive scale.
(My friend and I are grimly comparing the tens of thousands of dollars we have been costing our employer over the last five years. There is no end in sight; and, for us, unemployment will quickly bring fatal medical situations.)
May 13th, 2009 at 11:59 am
As an aside, you could get longevity insurance (Social Security) into actuarial balance just on the benefits side. I’m not saying you should want to, but you could do it if you did want to.
In any event, the big enchilada is health insurance. We may fiddle around for a while, but eventually I think we are going to need to go with a cost-containing cradle-to-grave single-payer basic plan. And yes, that means higher taxes, although really they should be called premiums.
May 13th, 2009 at 12:11 pm
If we are going to have increased taxes (besides a a huge carbon tax balanced by equal cuts in FICA taxes), let it be a 100%, no deduction, estate tax until all Medicare and Social Security benefits paid in the last five years of the newly deceased’s life are recovered. If Granny wants to pass on her 500 thousand estate to the kids, she can damn well pass on getting some of the wages of the people who bagged her groceries.
May 13th, 2009 at 12:17 pm
It’s completely misleading to talk about the Medicare situation and the Social Security situation as if they are comparable. If the projections prove accurate, Social Security will pay 100% of the promised benefits (including increases over current payments) for the next 27 years, and then – if there are no changes at all – it will be able to pay 75% of the promised benefits forever. To call this being “insolvent” is utterly false.
Medicare is projected to run into shortfalls in only eight years. At that point, it will not have enough money to pay for hospital costs of beneficiaries. Some people who need hospital care will go without, and that number will increase with each passing year. That would be a real crisis, one that needs to be addressed immediately.
Social Security can be left alone for another five years. If the economy improves, we will see the projected date for a cut in benefits recede, and any fix can be cheaper. Taking more money from people now to pay for retirement in the future is a reverse stimulus measure and it shouldn’t be on the table.
But Medicare needs to be addressed now.
May 13th, 2009 at 12:27 pm
Bloix, those promises in that thing called the Social Security Trust Fund are as tangible as the projected budget for the Department of Defense in 2020. In fact, reneging on those promises would likely make the Chinese more willing to buy promises from the U.S. government. The real pressure starts not in 27 years, but when the promises in the SS trust fund have to be fufilled from other tax revenues, or by selling more promises at auction. That’s a few years away.
May 13th, 2009 at 12:28 pm
Will Allen, ever death’s champion. One has to expect him to rear his ignorant and mallicious head here. What’s the matter Will? Not enough money spent on murdering innocent brown people? Now you need to make sure money isn’t spent on making sure that the elderly have a decent life?
You know, we appreciate the effort it takes to drag your 400 pound carcass up on that moral high horse of yours where every issue is already settled in favor of letting people die for your entertainment. But really, we’ve heard your idiocy before. It’s tiresome. It leads to more death and devastation and is morally repugnant. So fuck off you ignorant purveyor of nutcase talking points.
May 13th, 2009 at 12:31 pm
See how Will lies? He wants everyone to ignore the massive debt racked up by the wealthiest taxpayers. That’s his argument. No, no, there’s no trust fund, it’s just an accounting gimmick that we used to rape the working class for decades. Nothing to see here. No need to require the general fund to actually meet its debts.
Only someone remarkably stupid would sell that argument. One would have to be even dumber than dirtbag Will to buy it. Luckily, that bar is so low that it becomes almost impossible to type once you are that stupid.
May 13th, 2009 at 12:44 pm
Stupid, get back on your meds.
May 13th, 2009 at 12:46 pm
There is something terribly amusing about the spectacle of someone who rejects the New Deal, a primary foundation of eight decades of prosperity, at this late state. But then Will Allen, aside from being the kind of goon who supports state sponsored terrorization of innocent brown people, has a mythology that blames FDR for WWII and for the Great Depression. It’s crazy, but then you can’t really expect much from a guy who actually imagined that George W. Bush was competent to be President – even in 2004 after it was obvious to anyone who cared to look that Bush had been gifted with a position far beyond his merge abilities. Voting once for George W. Bush shows you aren’t too bright. Voting a second time for him shows you are not at all competent to be in the public sphere.
May 13th, 2009 at 12:48 pm
Poor pathetic Will, he has no answer to the fact that his ideology is that of a murderous tyrant.
How many Iraqis need to die before you will let us keep Social Security Will? Is that the right tradeoff for you? Or are you just so bloodthirsty that the elderly need to be murdered for your entertainment as well?
At 400 pounds you should be careful when talking about other people’s meds. It can hardly be good for you to keep that much weight.
May 13th, 2009 at 1:00 pm
For the record, I do support increasing disability payments for the mentally ill. Know hope, Stupid.
May 13th, 2009 at 1:02 pm
a 100%, no deduction, estate tax until all Medicare and Social Security benefits paid in the last five years of the newly deceased’s life are recovered.
The thing about longevity insurance (Social Security) is that it already transfers funds from the short-lived to the long-lived. Which is fine–that is its primary purpose after all. But I think if you are going to add some means-testing to Social Security, you should apply it as much or more to the long-lived wealthy. This plan, in contrast, would disproportionately affect the short-lived wealthy.
May 13th, 2009 at 1:02 pm
Speaking of the New Deal, as I recall, the deal was to allow people who were TOO OLD to WORK a little dignity in their LAST FEW years of life. People in that time could not have imagined that so many people would be living this long, this healthy. The deal was NEVER to guarantee leisure for 15 to 30 years for the majority of the population on the backs of the working poor.
May 13th, 2009 at 1:04 pm
I think everyone understands taxes are going to be higher, and thats why those folks were out with their tax “tea parties”. You and the rest of the left liked to belittle them because they were protesting a slight increase that only a small percentage of the population will pay, but the reality is that because of the spending we’re already bound to, and the spending we’ve recently committed ourselves to…higher taxes are a foregone conclusion
it’s all over but the crying
May 13th, 2009 at 1:11 pm
Well, DTM, the real short-lived wealthy don’t draw much in the way of retirement benefits. What I would really prefer is to stop pretending as if it is still 1935, where being 65 or 67 made it far, far, far, more likely, compared to today, that one was poor, in bad health, and without prospect of engaging in productive work which would cover at least a significant portion of one’s living expenses. Reactionaries living, in their cluttered minds, in 1935, dominate our political economy, however.
May 13th, 2009 at 1:11 pm
We mocked the nuts with their teabags because they were clowns with no idea what the hell they were doing. The fact that decades of “borrow and spend” policies starting with the first of the great borrowers Ronald “the children can pay for this” Reagan (more debt on his watch than all the previous presidents combined), have left us with a great hole in the budget is hardly something that can be put on “the left.”
Hell, “the left” (or at least as represented by the center right Democratic Party, even went so far as to compromise on Social Security. Taking it from a Pay as You Go, to a “Prepay and give the wealthy tax breaks until fuckwits like Will Allen come along and decide that it’s just that second part that we are willing to keep” system.
And thus we have a massive trust fund. All of which was funded by those who Will Allen and the rest of the moron parade want to fuck.
May 13th, 2009 at 1:14 pm
The deal was NEVER to guarantee leisure for 15 to 30 years for the majority of the population on the backs of the working poor.
But yeah the elite types want to tax the working poor’s few pleasure in life like a cold soft drink or beer. For their own good of course b/c the working poor are too stupid to know what’s what.
May 13th, 2009 at 1:19 pm
Will, throwing around accusations of mental health issues is beneath you. And given your admitted 400 pound bulk, that means it comes out pretty flat.
May 13th, 2009 at 1:30 pm
People who take a promise seriously, in terms of moral commitment, when it is made by group x, but will be mostly paid by group y, who are yet to be born, are a wonder, in that they are able to move food into their mouths.
By the way, no one has been “funding” the trust fund, really. That is why the promises it holds will have to be fufilled, within a few years, with non-FICA taxes, or by selling promises at auction. What happened was this; people, including me, had their wages transferred to old people without regard to the old person’s wealth, and then had some more wages used to pay for other stuff, some good, a lot of it bad. Then a promise was written up, supposedly obligating people yet to be born to pay people like me when we got old. It was an obvious farce to me by the time I was 18.
May 13th, 2009 at 1:33 pm
Yeah, poptarts, there really is something perverse about favoring consumption taxes mostly for things that non-wealthy people enjoy, while also taking 15% off the top of their paychecks, to give to an age demographic with a much higher median net worth.
May 13th, 2009 at 1:38 pm
Well, DTM, the real short-lived wealthy don’t draw much in the way of retirement benefits.
Right, that was part of my point. You have been a high-wage earner and you retire at 65. You’ve built up a sizeable retirement portfolio and you also start collecting Social Security. You then die at 70. Under the status quo, you are already a net loser under Social Security–which again is fine, because that is the nature of longevity insurance. But your clawback plan would then make these people even bigger losers since their estate would have to pay all their Social Security benefits back.
Again, I just don’t see the point in hitting these people disproportionately, as opposed to people who start in a similar position but live longer. You might as well just means test all along to get the same effect.
What I would really prefer is to stop pretending as if it is still 1935, where being 65 or 67 made it far, far, far, more likely, compared to today, that one was poor, in bad health, and without prospect of engaging in productive work which would cover at least a significant portion of one’s living expenses.
It is really a matter of choice. If we want to have our retirements continue to expand as we live longer and healthier lives, we are going to need to pay higher premiums (aka taxes) for the necessary longevity insurance. Or we can reduce our longevity insurance premiums and work longer, or do a bit of both. Again, it is a matter of chosing how we want to use the surplus of a longer and healthier life.
May 13th, 2009 at 1:54 pm
Well, DTM, there is no “choosing” when the state mandates something, at least for 49.9 % of the population. I’d rather have rich people choose whether they want to draw government benefits, with the knowledge that every dollar they draw is a dollar they won’t leave to their heirs. I’d rather not tell a 20 year old Wal mart employee that he has “chosen” to give his money to a healthy, relatively wealthy, 67 year old guy who really, really, like to play golf.
Is having 25 years of healthy, materially abundant, leisure at end of life really, really, important to a person? Fine, that person can start living their life at age 18 which will maximize their odds of being able to pay for it themselves. That person shouldn’t “choose” to have some poor slob, yet to be born, pay for it.
We haven’t even yet talked about how much harder it is to maintain strong rates of economic growth when a large segment of the population with non-trivial productive potential is having it’s leisure subsidized. A typical 67 year old today isn’t even in the same univese as the typical 67 year old of 1935.
May 13th, 2009 at 2:05 pm
Well, DTM, there is no “choosing” when the state mandates something, at least for 49.9 % of the population.
That is an odd theory of democracy.
In any event, the basic case for the state providing a floor level of longevity insurance is that the private markets won’t, and even if they did it would be a lot cheaper for the state to do it. That is a sufficiently strong case for the state providing a product that it turns out a lot more than a mere 50.1% of the population want.
We haven’t even yet talked about how much harder it is to maintain strong rates of economic growth . . . .
There is more to serving the citizenry than maximizing economic growth. We value our leisure, and there is nothing wrong with that.
May 13th, 2009 at 2:10 pm
Meanwhile, note that the trustee’s report suddenly looks a lot worse because of the recession.
Matt: please don’t add to the reactionary spin. Running out of intergovernmental IOUS in 2037 as opposed to 2041 isn’t “a lot worse.” In the first place it’s just a projection — it may not come to pass. Secondly, the country will be a lot wealthier by then. Thirdly, all we have to do is pass a law saying “The United States shall fund Social Security checks out of direct revenue should trust assets become depleted” and we’re home free — and that’s without nudging up the retirement age (which I think we should).
Then a promise was written up, supposedly obligating people yet to be born to pay people like me when we got old. It was an obvious farce to me by the time I was 18.
It’s not a farce. And it’s certainly not an obvious farce. The chances that reactionary political forces will be able to outvote the growing cohort of SS recipients any time soon is nill. You’ll get your checks, Will, despite your best attempts to insure you don’t. You’re only chance of being fucked by the program is if you die young. My guess is you’ll live to a hundred and nine.
May 13th, 2009 at 2:19 pm
Fine, DTM. People who highly value their leisure can behave in a way which is consistent with that. I think you meant to say that a lot of people highly value leisure which is supplied by other people’s labor.
My theory of democracy is that it is a mechanism of implicit violence which is only good when it serves the purpose of expanding or maintaining liberty, liberty defined as the absence of coercion, except when coercion is required to prevent tyranny or anarchy. Thus I don’t think the coercive transfer of wealth to old rich people from young poor people is a very good outcome of democratic processes.
May 13th, 2009 at 2:27 pm
Jasper, I didn’t say it was farcial, farcial meaning that a population bulge wouldn’t be able to vote itself other people’s wages. I meant farcial in the sense that it is nonsensical to maintain that people who had yet been born when a promise was made have any moral obligation to fufill that promise.
I agree government is necessary, and that a republic with democratic processes is likely the best from of government. That doesn’t give moral cover to all outcomes of such processes, however.
May 13th, 2009 at 2:27 pm
Will Allen’s theory of democracy can be seen in his support for killing Iraqis because he didn’t approve of their government. If you talk to him about the massive deaths, the tyranny of deprivation, these things will simply not generate responses. The millions of displaced are nothing, the hundreds of thousands of dead are nothing. The “freedom” to starve under “democracy” is so great that he is willing to sacrifice the lives of innocent men, women, and children. Provided, of course, that none of those lives is Will Allen.
I do have a tendency to go on about his warped view of the world, but it is only because it infests everything he posts. From his tirades about how the Democrats are just as immoral as the Republicans because “John Edwards made his marriage the centerpiece of his campaign” to “George W. Bush was qualified to be President, even after starting a brutal war on the innocent people of Iraq,” it all flows from this sick worldview where the word “freedom” is more important than what it means in the real world.
The Iraqis who die violently today, Will, thank you for your help in freeing them from the tyranny of life. As will the seniors who die early because you want to be sure that you don’t pay more in taxes. You half-witted monster.
May 13th, 2009 at 2:28 pm
My theory of democracy is that it is a mechanism of implicit violence which is only good when it serves the purpose of expanding or maintaining liberty, liberty defined as the absence of coercion, except when coercion is required to prevent tyranny or anarchy.
I see–you are a deontological libertarian. I guess then I am wasting my time making consequentialist public policy arguments. And since I freely admit the case for the state provision of longevity insurance depends in part on such arguments, it would appear this conversation is at an end.
May 13th, 2009 at 2:28 pm
Will, as someone who supports murdering people for the crime of living on your oil, you have no right to talk about morals.
May 13th, 2009 at 2:40 pm
DTM, I think the contrast between deontology and consequentialism are often entirely overemphasized. You simply prefer your outcome to mine, because you don’t value individual liberty as much, which you deem a result of your consequentialist viewpoint. In reality, you simply prefer different consequences, although the differences in our preferred consequences can be overemphasized as well.
May 13th, 2009 at 3:48 pm
you don’t value individual liberty as much
More precisely, I would define individual liberty differently and therefore don’t actually think your philosophy maximizes individual liberty. To summarize a complex topic, you view property rights as central to individual liberty, and I do not (although I do think they tend to be quite useful).
Anyway, “consequentialism” is a technical term, and doesn’t apply to just any preference over outcomes. In other words, you are arriving at your preference over outcomes in a deontological way, which is what makes you a deontological libertarian.
May 13th, 2009 at 3:49 pm
Will, you don’t value the individual liberty of the fucking dead Iraqis do you? There is no liberty in being dead, and pretending that you support their deaths because there is some higher moral principle is what makes you a moron and a monster.
May 13th, 2009 at 4:25 pm
Just make it stop.
First people are confusing mortality at birth and mortality at 65. It is just not true that new retirees in the 40s and 50s were only living a couple years. If you made it to 65 you had a good chance of making it to your biblical three score and ten. And BTW this also applies to black men, the notion that Social Security is inherently unfair to blacks is just more Right propaganda dependent on people not understanding mortality tables.
Social Security as a combined entity can be left alone for 20 years. Literally, my colleague developed a spreadsheet that allows Social Security to deliver 100% of scheduled benefits through a phased in set of increases starting in 2028 that plan is called ‘Trigger’. We also have a plan called ‘Tenth Now’ which shows a similar plan starting in 2010 and going through 2028 and then picking up again if necessary in 2053. Spreadsheets available at this link.
http://angrybear.blogspot.com/2009/05/mechanics-of-northwest-plan-for-real.html
Tenth now would start boosting FICA by 0.1% in 2010. For a laborer making $12.50 an hour this ends up starting by costing him a quarter per week of take home pay. If this sounds crazy I can only suggest you do the arithmetic. (And assume the employer/employee split.)
We have a contact who is going to attempt to get these plans scored by SSA.
In reality if you disassociate the DI program from OAS there are reasons why we should address the former now and the latter not until 2028 through a combination of Tenth Now and Trigger. You can actually fix DI via an initial 0.05% fix for six years followed by about a 0.07% fix for OAS in around 2028, we don’t yet have this one in spreadsheet form.
I am not suggesting that a broad-based payroll tax fix is ideal, but before below median income workers are asked to give up three years of retirement we might want to ask if they would buy them back for a tax that starts at a quarter a week and builds to a massive $5 bucks a week by 2030.
I am all for progressive taxation, I just don’t see it as the right way to fix Social Security which really doesn’t need fixing right now. Tax the crap out of hedge fund managers and fund health care and education if you want to get all warm and progressivey. Really Social Security just needs to be left alone by the well-intentioned people who would screw up the very clever political balance built into the current system. There are good and sufficient reasons to have a payroll cap, people should not assume they are smarter than FDR and Frances Perkins.
May 14th, 2009 at 6:15 am
Usually I’m not a big fan of Will Allen, but I like all his ideas on this thread. First, estate taxes should be much higher. There’s no more efficient form of taxation and it involves the lowest actual burden on citizens by my value system (considering taxation on income or wealth you earned to be a greater burden that taxation on inherited wealth).
Secondly, it is certainly unfortunate that we have a one size fits all social security program. I can think of a few reasons why alternatives might not be workable, but you could certainly imagine a system whereby people choose the public plan they join early in their careers, determing current tax rates and later benefits. It is just foolish to criticize this kind of idea as ‘not understanding democracy’. Just because we live in a democracy doesn’t mean that everyone has to buy the same car. Ideally, we could choose our retirement plans as well. Maybe it’s not feasibly, but it’s not a bad ideal to hold.
May 14th, 2009 at 11:23 am
It is just foolish to criticize this kind of idea as ‘not understanding democracy’.
But I did no such thing. I claimed that it is a odd theory of democracy to believe that if you are on the losing end of a vote, you played no role in making the choice.