August 22, 2012 · 0 Comments
By Dean Baker:
David Brooks makes one of his usual balanced pitches for the Romney-Ryan ticket. As usual, just about everything of substance in the piece is wrong.
He begins by bemoaning the fact that: “Entitlement spending is crowding out spending on investments in our children and on infrastructure.” (Btw, “entitlements” is pundit speak for Social Security, Medicare, and Medicaid.)
Brooks tells us:
“In 1962, 14 cents of every federal dollar not going to interest payments were spent on entitlement programs. Today, 47 percent of every dollar is spent on entitlements. By 2030, 61 cents of every noninterest dollar will be spent on entitlements.”
Yes, that sounds really horrible, except to those who know budget data. The vast majority of this entitlement spending has been paid for with designated revenue streams. Back in 1962 the Social Securuty tax rate was 6.2 percent (combined employer and employee). Today it is 12.4 percent. The Medicare tax was zero. That’s because we didn’t have Medicare. Today it is 2.95 percent.
These taxes together cover the vast majority of the cost of these programs. Voters have repeatedly shown themselves willing to pay higher taxes to support the programs. It is true that if we don’t get health care costs under control, they will eventually wreck the economy and also lead to huge budget deficits.
But the issue here is health care costs, not Medicare. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses not deficits. This is why serious people focus on the need to fix the health care system, not Medicare.
The idea that spending on Social Security and Medicare is crowding out other items in the budget is also misleading at best. Those with access to tax data would see that the combined tax on individual income taxes, corporate income taxes and excise taxes (mostly tariff revenue) fell from 13.8 percent of GDP in 1962 to 9.0 percent of GDP in 2011.
Is Brooks trying to tell us that we had to cut corporate income taxes, reduce the top marginal tax rate from 90 percent to 39.6 percent, and eliminate most tariffs because of Social Security and Medicare? The reduction in revenue from these sources is reason why the non-Social Security and Medicare share of the budget is shrinking. We won’t get more money for the investment portion of the federal budget unless we look to raise these other taxes back towards their former levels — unless Brooks want to use money designated for Social Security and Medicare to finance other areas of the budget.
The transformation of the federal government can be thought of as being comparable to a corner store that begins a mail order operation. If the store’s mail order operation grows rapidly, then it will comprise an ever larger share of the store’s sales. This will be even more true if the store decides to cut back its store space because it cares less about the old-fashioned store.
If at some point the store’s owners decide that they really value the traditional store, they will not be able to rebuild the business by cutting back the mail order operation. They will have to get more store space. This is the story of the federal budget outside of Social Security and Medicare. If we want to see more spending in these areas then we will have to raise non-Social Security and Medicare taxes. This means income taxes, financial speculation taxes or other forms of revenue. It doesn’t make sense to blame the mail order business.
Finally, the idea that Ryan and Romney have some new plan to “fix” Medicare, while President Obama has nothing turns reality on its head. The new Ryan plan is a variation on past efforts to include private insurers in the Medicare program. The past programs had names like Medicare Advantage (Bush II vintage) and Medicare Plus Choice (Gingrich vintage). These experiments raised costs. These experiments raised costs. (Sorry for the repitition, but if Brooks is reading it is probably necessary.) The problem is that private insurers have higher costs than the public program. And, there will naturally be higher administrative costs associated with shuffling people back and forth between programs.
It is also worth noting that the prior versions of Ryan’s Medicare plan gave people a voucher which the Congressional Budget Office concluded would be grossly inadequate to pay for Medicare equivalent policies. Brooks might consider it unfair to go back to the plan that Ryan put forward back when he was just a young man in 2011, but it might give some indication of how he views Medicare.
Finally, Brooks apparently has not heard about the Affordable Care Act, which reduced the projected shortfall in Medicare by two-thirds. In 2009 the shortfall wasprojected at 3.88 percent of covered payroll. That’s down to 1.35 percent of covered payroll in the 2012 report. Of course that is not yet balanced, but that is more progress in controlling costs than anyone else has done. (If policy debates were not dominated by protectionists, then we could save huge amounts of money by allowing people to take advantage of more efficient health care systems in other countries.)
Anyhow, Brooks has once again reversed the basic facts. President Obama has taken important first steps in restraining Medicare costs. His preferred ticket of Romney and Ryan want us to try again an experiment from the Gingrich and Bush days which has already failed twice. It’s not a very compelling case, but I suppose he is ahead of Nialls Ferguson.