Third Rail Issues
By Arnold Kling
The central distributional issue of our time is not between rich and poor. It is between retirees and non-retirees. In fiscal 2003, Social Security and Medicare cost $744 billion. All federal retirement and disability programs now account for more than 40 percent of the budget…
Private accounts might generate more income and improve the chances of paying future benefits. But someone’s got to pay for these accounts. If Bush diverts some payroll taxes into them, he must raise other taxes, increase the deficit or cut benefits for today’s Social Security recipients (today’s taxes pay their benefits). Naturally, these unpopular details go unmentioned.
Kerry’s position is, well, more conservative. He champions the status quo. “I will not privatize Social Security. I will not cut benefits,” he says. He pledges not to raise the retirement age. Similar guarantees seem to apply to Medicare. His policy amounts to a huge tax increase for tomorrow’s workers, most of whom won’t vote in November. ..
Social Security and Medicare are welfare programs. They are not (as liberals like to say) “social insurance.” Nor are they (as conservatives often say of Social Security) “pensions.” These labels aim to deter scrutiny or criticism. Social Security and Medicare benefits are paid with current taxes. The same is true of (say) food stamps, farm subsidies or unemployment benefits. Workers have not been “saving” to pay their own Social Security and Medicare costs…
Liberals and conservatives often imply that if they can cover Social Security’s long-term costs, everything is okay. Not so. The reason: Health costs dominate future spending…
any sensible solution must include benefit cuts. There are many possibilities: higher eligibility ages; higher Medicare premiums; stingier benefits for wealthier retirees. Present benefit levels imply staggering future tax burdens.
Meanwhile, Holman Jenkins writes,
It would take $3.9 trillion today to retire the visible national debt, and $72 trillion today to pay off unfunded promises to retirees. Yet only the first debt is reported to voters. That’s the kind of accounting “oversight” that, in the private sector, leads straight to a cellblock.
…Why is this important? Because suddenly the $1 trillion in “transition costs” to finance the creation of the Bush-touted private retirement accounts for younger workers doesn’t seem so outlandish compared to the real federal debt, visible and invisible
Jenkins gets at one of my pet peeves–people who say that we “cannot afford” to privatize Social Security, because of the “transition cost.” In fact, the “cost” of privatizing Social Security is taking an unrecognized liability of the government and making it explicit.
Samuelson and Jenkins both try to speak honestly about how Social Security and Medicare work and what makes them unsustainable. For more on these issues, you can read my essays Farmers and Parasites, Phase Out Medicare, A Social Security Primer, and The Ultimate Lockbox.
UPDATE: for more on government’s phony accounting, see Bruce Bartlett.
For Discussion. On the entitlements issue, is honesty the real “third rail” that no politician will touch?