By Luke Brinker
Lori Montgomery has what economist Dean Baker rightly terms a “front page editorial” in today’s Washington Post. Montgomery laments that for all of the new Congress’s talk about decreasing the federal budget deficit, lawmakers took little action to actually reduce it. The piece contains two overarching flaws: its tacit assumption that not solving the deficit nownownow is something to mourn, and its analysis that to save the republic, seniors’ Social Security benefits must be cut in the future.
Montgomery ignores the empirically proven fact that harsh austerity regimes aimed at reducing a country’s budget deficit worsen the country’s economy (thereby leading to diminished tax revenues and even higher deficits). A July 2011 paper from the International Monetary Fund looked at 173 instances of austerity and determined that ”a 1 percent of GDP fiscal consolidation reduces real private consumption over the next two years by 0.75 percent, while real GDP declines by 0.62 percent.” (h/t Ezra Klein).
The article asserts that “Social Security and Medicare pose a long-term threat if there are no constraints on benefits.” As economist Christina Romer might say, this claim is “oh so wrong.” Let’s start with the latter program. Montgomery makes the all-too-common mistake of conflating Medicare with the problem of rising health care costs, which are indeed driving long-term budget deficits. The solution is not to cut Medicare, with its much more efficient spending, and replace it with a less-efficient “premium support” model (like, say, the Ryan-Wyden plan), which would only shift costs without addressing their underlying causes (too many unproven and unhelpful procedures, fee-for-service medicine, and so on).
By arguing that cutting Social Security is essential to the nation’s fiscal health, Montgomery certifies her status as a Very Serious Person among the Peter G. Peterson Foundation crowd. What she doesn’t do is display a basic comprehension of how the program actually works. Here’s Baker:
The piece also includes several comments to the effect that Social Security and Medicare will break the budget. In fact, Social Security’s costs are rising very gradually. Furthermore, its projected benefits are fully paid for through the year 2038 with no changes whatsoever in the program. Even after that date, if Congress does not change the law, Social Security cannot contribute to the deficit. It would only be able to pay out about 80 percent of scheduled benefits (roughly 10 percent more than the average benefit received by today’s retirees).
Moreover, economists at the Congressional Budget Office conducted a study last year finding that a two-percentage point increase in the payroll tax paid by both employers and employees over 20 years would make up for the program’s 75-year shortfall. (It’s also worth noting that only the first $90,000 of income are subject to the payroll tax. This means that working- and middle-class families pay a dramatically higher proportion of their incomes into Social Security than the affluent.)
Unless the Post commits itself to budget reporting that bears some relationship to reality, it’s unlikely that its flagging fortunes will be revived anytime soon.