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Making hard choices on the budget

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Megan McArdle does some back-of-the-envelope math that leads her to doubt that Social Security's 75-year shortfall and extending Bush's upper-income tax cuts would both cost about 0.7 percent of GDP. The Center on Budget and Policy Priorities has posted a response that's pretty persuasive, and suggests that McArdle misread one of the underlying CBO documents. So I'm calling this one for CBPP, at least for the moment.

But that leaves us with McArdle's second point: "While it is perhaps true that you could 'pay for' the Social Security shortfall by rescinding the Bush tax cuts on the rich," she writes, "that would leave a gaping budget deficit that would then have to be paid for in some other way." Well, yes. The contention is that there are better ways to pay down the deficit than raising the Social Security retirement age or cutting benefits.

People like to look at Social Security in isolation, and they routinely say there's no way we can possibly afford the program as currently constructed. The point of the comparison to the Bush tax cuts for the rich is that that's simply not true. The same people saying we can't afford Social Security's shortfall are saying we can afford tax cuts of the same size. Both things can't be true.

As Megan says, we do have to make hard choices on the budget. But that means making hard choices on the budget. Too often, the question is narrowed to "making hard choices on Social Security," which naturally leads to benefit cuts or payroll tax hikes, as those are really the only options within the program itself. But those aren't our only options, not by a long shot.

By Ezra Klein  |  September 1, 2010; 11:36 AM ET
Categories:  Social Security  
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Comments

I'm sure Megan McArdle is nice and all, but her and math don't get along.

Posted by: mschol17 | September 1, 2010 11:52 AM | Report abuse

Right. "Hard choices" means having to cut a domestic social program, but never cutting back on defense or raising taxes. Hell, cutting defense spending is an easy choice. We could cut our defense spending in half and still spend quite a bit more than any other country. And we don't even need to do anything to let the tax cuts expire. They'll just sunset like they're supposed to and a rather large chunk of our deficit problem goes away. Now, neither of these, either together or separately, will completely eliminate the deficit; not by a long shot. No matter what we do we're going to have to make some kind of hard choice, but that choice should be from the full table of options, not some narrow selection that appeal to a particular type of fiscal conservative.

Posted by: MosBen | September 1, 2010 11:53 AM | Report abuse

I'm sure Megan McArdle is nice and all, but her and math don't get along.

Posted by: mschol17 | September 1, 2010 11:53 AM | Report abuse

Plus its worth noting that Social Security beneficiaries are currently 16% of the population, including the disabled and surviving children, a percentage that is projected to increase to 25%. There is a clear equity question involved between using 0.6% of GDP going forward to support a group that includes the most societally vulnerable as opposed to simply allowing a number of households a fraction of that size, and already thoroughly comfortable to maybe leverage that GDP going forward for some alleged national benefit.

Unless we just throw democratic utilitarianism out the window all together someone needs to examine these equity ratios. Per Wiki there are 371 billion American billionaires. As opposed to the 42.8 million recipients of OAS and 9.7 million of DI in 2009.
http://www.ssa.gov/OACT/TR/2010/V_programatic.html#233349
That Republicans are even entertaining this discussion, and still less doubling down by openly discussing slashing active military and defense retiree pay and health benefits, is in the context of any kind of social justice equity calculations simply stunning.

Posted by: BruceWebb | September 1, 2010 11:57 AM | Report abuse

Well an extra 'billion' snuck in there. Oh well.

Posted by: BruceWebb | September 1, 2010 12:00 PM | Report abuse

Again, given that nearly of the benefits of making Social Security solvent flow to largely to the poor and middle class, why does hiking the payroll tax by 1.92% never seem to be considered as a solution?

Is the program only worth keeping solvent if other people pay for it?

Posted by: justin84 | September 1, 2010 12:13 PM | Report abuse

It is so easy to talk about cutting SS benefots and/or raising the retirement age because these cuts hit the poor and middle class. Savings in Medicare mean less moeny goes to hosptials and doctors, not exactly "the poor" in our society. The Bush tax cuts on the top 2% of course benefit only the top 2%. It is absolutely stunning the degree to which the already rich want to improve their position at the expense of everyone else, even more stunning that so many ion DC go along with this.

Let's start talking about the defense budget as "unfunded security liabilities for the future."

Posted by: Mimikatz | September 1, 2010 12:19 PM | Report abuse

ezra ,isn't it your job to do the type of critique / dig deeper into the numbers that megan did, rather than just slap something into a blog post yesterday simply because it jived with your political inclinations? Since you posted CBPP's response, shouldn't you now address and post Megan's response to the response? Again, we know the link to Yglesias's site if we just wanted to see the rambling propaganda of a want-to-be Trotsky... here there is suppose to be some thoughtfulness and analysis.

Posted by: cdosquared5 | September 1, 2010 12:34 PM | Report abuse

Can someone wake me when Megan gets something -- anything! -- right?

Gawd, how do I get a job where I can just make stuff up, be proven wrong over and over again, and still keep getting paid -- and linked to!

Posted by: AZProgressive | September 1, 2010 12:55 PM | Report abuse

The argument is not that paying for Social Security would be the same amount as the Bush Tax cuts for the wealthy.

That the numbers are similar is irrelevant.

The argument needs to be what would the impact of restoring the taxes on the rich to pre-Bush tax cut levels compared with the effects of shoring up Social Security.

I'm not advocating keeping the tax cuts in anyway, but to have an honest debate about it, we need to know what the long term fiscal impacts would be if that money switches from one bucket to the other.

Posted by: rpixley220 | September 1, 2010 1:09 PM | Report abuse

Yes, we need to make hard choices o the budget. I see the need for 2 sets of decisions:

1. Increase the Revenue. The law as it now stands will do that, and we must thank the Republicans for putting a limit on the cost of the change to the estate tax as well as the drop in the income tax rates;

2. Decrease Expenses. Begin with Defense. We are spending almost as much as everyone else combined and are not getting our money's worth. I believe that a 20-25% reduction can be absorbed comfortably. Next, eliminate almost all farm subsidies. It makes little sense to pay people to not grow crops. Lastly, reallocate infrastructure expenses to align more closely with the population. This may not result in a reduction in expenses, but it should create a more equitable allocation of resources. As things now stand, those who complain most about the reach of the federal government also collect the most in federal dollars.

Posted by: AMviennaVA | September 1, 2010 1:18 PM | Report abuse

I'm still trying to reconcile the numbers from yesterday's WaPo report (http://www.washingtonpost.com/wp-dyn/content/article/2010/08/31/AR2010083102811.html, "The rise in spending was the largest since the Census Bureau began compiling the data in 1983. ... Overall, the largest chunk of federal spending - about 46 percent of the $3.2 trillion - went to Medicare, Medicaid and Social Security, entitlement programs that are projected to swell as the population ages.") with the numbers Matthews provided on this blog about two weeks ago.

Posted by: rmgregory | September 1, 2010 1:25 PM | Report abuse

The crucial point, though, is exponential growth.

If you have a major cost that's growing a few percent faster than GDP, then over a long period it grows exponentially as a share of GDP; it ski slopes. And nothing will work other than cutting its growth rate at some point.

The thing of which I speak is health care.

You really want to control or eliminate debt over long periods, 50, 75+, years, then it's overwhelmingly about just one thing – controlling the growth rate of health care costs.

Obviously few people talking about debt get this because you almost never hear health care related proposals in their solutions.

Luckily, Obama does get this, as we saw with his passing of a large healthcare bill that is projected by credible non-partisan sources to cut debt by trillions over decades.

Posted by: RichardHSerlin | September 1, 2010 1:27 PM | Report abuse

"Megan McArdle does some back-of-the-envelope math" is about as far as I needed to read in this post.

Please explain again why people persist in treating her like a serious political discussant when her contributions to these kind of conversations always involve getting in way over her head on some quantitative issue and then obstinately insisting that the experts are wrong for a week or so? And for people, read "you."

Posted by: RobK_ | September 1, 2010 1:31 PM | Report abuse

I find it hilarious that the crowd that wants to automatically discredit Megan never takes the time to read what she says and just relies on "unbiased" determinations of her correctness by Ezra and friends. Her retort to the CBPP was very well thought out and IMEO she is right and the CBPP is wrong.

Posted by: novalifter | September 1, 2010 1:46 PM | Report abuse

Novalifter - McMoron is wrong about 99% of the time. She's not an economist and as far as anyone can tell, she doesn't have any math background beyond 8th grade. The onus is on you to show that she did something right, not the other way around.

When a deeply unserious person is wrong all the time, it's a waste of everyone else's time to work through her bs.

Posted by: mdg1111 | September 1, 2010 2:21 PM | Report abuse

"I'm not advocating keeping the tax cuts in anyway, but to have an honest debate about it, we need to know what the long term fiscal impacts would be if that money switches from one bucket to the other. Posted by: rpixley220 "

Well, the rich keep on doing what they are doing. Maybe their Ferrari salesman sells a few fewer Farraris.

The people on social security go on living on their SS and whatever other retirement they get. The defricit goes down, and the Republicans have to talk about the deeficit in somewhat less apocolyptic terms, but they were Irate about $40 billion annual deficits, and going down, under Carter, so they will still have something to whine about.

Then again, they whined about a surplus under Clinton being too big, so they will never run out of things that make them unhappy when Democrats have the White House and Congress.

For all practical purposes, unless we start cutting Oligarchs Heads off at the gate way Arch, nothing much will change.

But we COULD balance a budget one of these years if we went back to top bracket at 90% because CEO's would spend more time worrying about how to build their companies, and less about how to build their Stock Options portfolios.

Ten percent tacked onto the tariffs on ALL imports would do wonders for the economy, too.

But I am a dreamer and the republican Nightmare has a couple years yet to run.

Posted by: ceflynline | September 1, 2010 10:23 PM | Report abuse

If you subtract all federal spending on health care from the federal budget ... Under the CBO baseline projections Social Security and all other outlays actually "decrease" as a share of GDP into the future you can create your own graph using excel and the data from the CBO website.

This is proof that decreased defense spending and holding non-defense discretionary spending at close to CPI will lead to surpluses in the non-health care side of the budget.

This country has a health care spending problem ... it can't be any clearer to anyone who cares to look at the data.

Posted by: cautious | September 2, 2010 5:31 AM | Report abuse

justin84 wrote: "Again, given that nearly of the benefits of making Social Security solvent flow to largely to the poor and middle class, why does hiking the payroll tax by 1.92% never seem to be considered as a solution? Is the program only worth keeping solvent if other people pay for it?"

We did raise the payroll tax, back in the early 80s, and built up the massive Social Security "trust fund," which the general fund has been borrowing from for years. Does your logic apply to that money too? Cuz you're going to owe a lot of working folks their money back...

Posted by: pmp888 | September 2, 2010 9:32 AM | Report abuse

"We did raise the payroll tax, back in the early 80s, and built up the massive Social Security "trust fund," which the general fund has been borrowing from for years. Does your logic apply to that money too? Cuz you're going to owe a lot of working folks their money back..."

... and the general fund repays Social Security until the trust fund runs out in 2037, after which Social Security can only pay out a little more that 75% of promised benefits. There was indeed a tax hike in the early 1980s, but it was apparently too small.

So I ask again... given that nearly all of the benefits of making Social Security solvent flow to largely to the poor and middle class, why does hiking the payroll tax by 1.92% never seem to be considered as a solution?

Posted by: justin84 | September 2, 2010 4:53 PM | Report abuse

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