September 11, 2010
As Paul Krugman might say. the Committee for a Responsible Federal Budget (CRFB) is very, very confused.
At issue is this chart. What this figure presents are two policy choices (among many). One choice is to extend the tax cuts for upper-income taxpayers and cut Social Security benefits. Another possibility is to let those upper-income tax cuts expire as specified under current law, and fully fund Social Security. What we find is that with either option, the national debt in 2085 is the same.
The CRFB argues that although present-value calculations “are an important way to measure out fiscal obligations” it must be that “cash flow matters too.” In other words, even if we do get to exactly the same level of debt in 2085, it matters how we get there. If we choose to extend the tax cuts and cut Social Security, for example, we will have higher levels of debt every year for the next 75 years, but the difference will slowly shrink back to zero.
It may certainly be preferable to have higher debt today and pay later when the economy is much more productive and workers have much higher incomes than they do currently. But even 75 years down the road, few workers will make the equivalent of $200,000 this year. According to the projections of the Social Security Trustees, the average worker will earn a little more than $105,000 per year in 2085 compared to $43,000 today. This means someone earning almost twice the average in 75 years (and getting a cut in benefits) will have income less than those who would get tax cuts next year.
Even though the national debt in 2085 would be the same either way, choosing to extend the tax cuts would mean redistributing money from the middle-class to the rich. And all it requires is more debt in the short run. What a deal!
Finally, it should be noted that the CRFB dismisses the two alternatives as either/or, saying “Based on CBO’s 2009 alternative baseline, we will need to do the fiscal equivalent of letting the top income tax cuts expire AND reform Social Security AND a whole lot more.” Actually, they are conceding that Social Security simply isn’t the problem. The 2009 alternative baseline shows large and increasing deficits because of large and rapidly increasing health-care costs.
According to the Medicare Trustees, the projected unfunded cost of Medicare– the amount to be spent beyond Medicare taxes and premiums over the next 75 years– fell from 4.5 percent of GDP in 2009 to 2.7 percent in 2010. This is almost entirely due to President Obama’s recent health-care legislation. The savings resulting from this single act would suffice to pay for extending the tax cuts AND cover the Social Security shortfall AND still leave more than $3 trillion to spare on a pair of wars.
If the CRFB is genuinely interested in the long-term fiscal position of the United States Government, then it should be working day and night to make sure that the recent health-care reforms are made stronger, rather than trying to take away retirement income from low- and middle-class Americans.
