Social Security

Let's Cut Spending! (Just Not Any of the Spending That Benefits Me.)

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The Wall Street Journal's Sara Murray does a nice job of laying out the details of a well-known problem: In order to reduce the nation's deficit, we'll almost certainly need to cut entitlements. But an ever-growing percentage of Americans—about 45 percent in 2010—pays no taxes. And the number of people who receive government benefits is growing too. Not surprisingly, then, when you go looking for public support for cutting those entitlements, you don't find much. Voters tend to voice general support for cutting spending, but don't respond well to the idea of cutting benefits that affect them:

He needs you.

Yet even as Americans express concern over the deficit in opinion polls, many oppose benefit cuts, particularly with the economy on an uneven footing. A Wall Street Journal/NBC News poll conducted late last month found 61% of voters were "enthusiastic" or "comfortable" with congressional candidates who support cutting federal spending in general. But 56% expressed the same enthusiasm for candidates who voted to extend unemployment benefits.

As recently as the early 1980s, about 30% of Americans lived in households in which an individual was receiving Social Security, subsidized housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44% were, according to the most recent Census Bureau data.

That number has undoubtedly gone up, as the recession has hammered incomes. Some 41.3 million people were on food stamps as of June 2010, for instance, up 45% from June 2008. With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.

And, of course, the new health care law only expands the nation's entitlement infrastructure. Projections from the Congressional Budget Office indicate that, by the end of the decade, about 16 million individuals will receive health insurance subsidies, and another 16 million will enroll in Medicaid, the government's health insurance program for low-income individuals. Now, some portion of those folks already receive government benefits. (Those who end up enrolled in Medicaid are particularly likely to already receive some form of government assistance because they come from the bottom end of the income scale.) But the overall effect will almost certainly still be to add to the number of people who get government benefits.

If there's good news on the entitlement front, it's that voters do seem open to Social Security reform. From a Pew Poll released yesterday:

The latest Pew Research/National Journal Congressional Connection poll, sponsored by SHRM, conducted Sept. 9-12 among 1,001 adults, finds that 58% favor a proposal that would allow workers younger than age 55 to invest a portion of their Social Security taxes in personal retirement accounts that would rise and fall with the markets; 28% oppose this proposal. Majorities across all age groups—except for those ages 65 and older—favor this proposal. Among senior citizens, as many favor (42%) as oppose (42%) allowing private investments in Social Security. By contrast, fully 70% of those younger than age 30 favor this idea.

That's good news. But the bulk of the long-term budget problems stem from the country's commitments to health spending. But Pew reports that just a third of the public favors voucherizing Medicare. And even if there were more public support for general streamlining and downsizing, it would be tough to come up with politically plausible cuts, in large part because the new health care law sectioned off the most obvious potential savings from the program—and, you guessed it, put them toward a new entitlement.

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  1. Simple minds and Authoritarian Markets…….No THanks

  2. Simple minds and Authoritarian Markets…….No THanks

    1. Re: LOL,

      Simple minds and Authoritarian Markets…….No THanks

      What’s an authoritarian market?

    2. Did we finally break Max? Or is he succumbing to necro-syphilis like I predicted?

  3. The Founders were well aware of this dynamic. That’s why they didn’t give the federal government the power to make any kind of transfer or welfare payments.

    1. R C Dean:

      I hate to break it to ya…

      1. Break it to him.

      2. I can take, it, Pete. Lay it on me.

    2. I assume you’re talking about the constitution.

      The entire document can be summarized with a few words: “general welfare … regulate interstate commerce … necessary and proper”

      That’s it. The whole thing, amendments and all.

      The federal government can do anything it pleases.

      1. The federal government can WILL do anything it pleases we allow.

        FTFY

        1. Allow implies there is a way to disallow.

    3. The federal government does have the power to make transfer payments, otherwise it wouldn’t be able to do it. It might not be a constitutionally granted power, but in the big global/historical view, most government powers are of the “because you can’t stop me” variety.

      1. Well, yeah, if you’re going to be all cynical about it. . . .

        I was referring to the enumerated powers, of course, which is supposed to be all the powers it has. I know, I know.

    4. Quite correct, RC.

      As confirmed by the highest authority:

      “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on the objects of benevolence, the money of their constituents.”
      — James Madison

  4. Wouldn’t every homeowner who deducts mortgage interest on their tax returns be, in a way, getting a housing subsidy?

    1. Yes. Time for that little bit of middle-class welfare to go.

    2. If someone stole $30 instead of the usual $50, would you consider that a gift of $20?

      1. but its based on a particular behavior and that reduction in stealing is being subsidized by others who dont own homes via having more of their wealth stolen.

      2. That only works for those who view the income tax as completely illegitimate (as opposed to “too high”, or “spent corruptly”, etc.)

        1. Allowing someone to keep more of their income (tax deduction) is not the same thing as writing them a check (subsidy).

          1. It is exactly the same when you only give it to certain people.

        2. Unless you mean that your entire income belongs to the government, and that 65% or so that they allow you to keep is a gift for which you should be grateful.

          1. You don’t need to argue that, you just need to argue that you are obligated to pay the tax rate(s) times your full income. As such, that money (and only that money) is not yours — it’s spoken for, even if it’s briefly in your possession. Any income that you get to pretend doesn’t exist due to special exemptions, then, is a “subsidy”, since you’re been given back money that, per the income tax itself, was promised to the government.

            The main problem with that argument is that Congress has to pretend that these exemptions are part of the definition of income, and that definition is legitimate instead of arbitrary and corrupt, because Congress is technically limited in its tax power. If your tax is determined by something other than the income you earned, then the tax isn’t an income tax, it’s an income and something else tax, which is unconstitutional (though good luck with the case).

            1. You can’t be given back something that was never taken away.

              That is the distinction between a tax deduction and a subsidy.

              Though that people do not understand that distinction doesn’t surprise me being that so many do not understand distinctions between income vs wealth, society vs government, influence vs power, free markets vs crony capitalism, no government vs limited government, thinking vs feeling, and a host of other things that make rational thought possible.

              1. Tax rates and deductions have nothing to do with calculating who is and isn’t getting a subsidy.

                The only relevant calculation is what is the total dollar amount of taxes paid by the individual to the particular level of government in question (federal state or local) compared to the dollar value of actual government services that particular individual has received (on a user fee basis) from that level of government in exchange for his or her money.

              2. So sales tax isn’t a tax because the merchant is the one that sends the check?

                So you believe that people who pay zero income taxes are not being subsidized?

                You’re distorting the definition of “subsidy” to justify social engineering that you think is good. Just be honest about it.

        3. Ok, you’ve convinced me. The income tax is completely illegitimate. Now stop calling it a subsidy when I get to keep some of my own money.

  5. “When the people find they can vote themselves money, that will herald the end of the republic.”

    Benjamin Franklin.

    1. Franklin was a) wrong and b) a wealthy old white racist.

  6. about 45 percent in 2010?pays no taxes

    Hey Suder-man, get this right. It’s important. The article phrased it correctly:

    the fraction of American households not paying federal income taxes has also grown?to an estimated 45% in 2010

    It’s important because the biggest entitlements, SS and Medicare, ARE being paid for (albeit underfunded) by most taxpayers. And regressively, at that.

    1. That’s what I came to point out. Personal income taxes only account for about 40% of total Federal revenue. Payroll taxes and gasoline taxes are the two most obvious paid-by-the-poor-too Federal taxes which come to mind, I’m sure there are more. And that’s without touching on the “inflation tax”, which I’m sure we’ve all heard railed against by the Exalted Doctor Congressman Statesman from South Texas.

      1. Point taken. But when considering payroll taxes paid, you have to consider refundable income tax credits that are designed to reimburse payroll taxes (EITC and Making work pay credit).

        1. I remember reading that considering those, 18% have a tax liability of zero or less. Which is far from 44%, but still significant. Not sure what the exact makeup of that 18% is (since I would expect that old ladies with $100 in interest income aren’t getting those credits) which would determine how outraged I should be by this.

    2. It’s important because the biggest entitlements, SS and Medicare, ARE being paid for (albeit underfunded) by most taxpayers.

      I wouldn’t use the phrase “paid for” for something that is underfunded. Most people who are currently collecting SS and Medicare didn’t come close to “paying for” what they have and are receiving. Indeed, that’s a large part of why the benefits have to be cut in the future to account for the fact that the promised benefits outweighed taxes and could only be paid for via Ponzi scheme like methods.

      1. That’s irrelevant, aside from giving SS more credit than it deserves for somehow being a “good investment”. 14% of a poor person’s total life income disappears into Social Security, never to be seen again if they die before the retirement age. It’s a crushing burden on long-term capital accumulation through the most basic social unit used for that purpose: the family.

        1. Families, how antiquated. Look, once the gov’t takes everyones’ kids away, you wont have to worry about that niggling, outdated, institution.

    3. 66% Of American Corporations Pay Zero Federal Income Tax. Furthermore if we are truly wanting to save money by eliminating welfare programs, lets start with corporate welfare.

  7. what I was going to say. Mr. Suderman, you and your clan are wonky enough not to be making this talk radio kind of mistaken ellision.

    1. refering to MP’s 10:35 comment.

  8. Part of this is that politicians have lied for so long. John Stossel did a show back in the 1990s where he took a group of old people. At the begining of the show none of them were in favor of cutting SS or medicare. He then proceeded to explain to them how those entitlements were going to leave their children broke. After that, a large majority were willing to support cuts even to their own benefits.

    People will make sacrifices. But politicians never explain the stakes and never ask them to. Further, it is never put forth as part of a comprehensive plan to bring the government back to financial reality. No one will make a sacrifice unless everyone does. Why should I give up my benefits if doing so won’t save the country or just enable other people to keep theirs?

    1. The New Zealand approach, which only lasted a few years, is the way to go. As you say, people will accept cuts if they see that everyone is getting cut.

      1. …they took place in the context of a coherent overall framework focused on economic efficiency, stressing predictability, transparency, and accountability. As a result, individual reforms became mutually reinforcing. Supply-side gains were driven by a flatter tax structure and the elimination of distorting tax breaks. Farmers accepted the phasing out of agricultural subsidies because their costs fell with the reduction of tariffs on imported manufactured goods, while the costs of transporting agricultural exports also fell as a result of the commercial management of New Zealand’s ports and railways. That way, losers were also winners. As the economy was freed up and growth kicked in, the gains outweighed the losses. The reformers were influenced by economic thinkers such as Mancur Olson, Ronald Coase, and James Buchanan, and the reforms were shaped by insights from public choice theory, agency theory, and transaction cost economics. The whole process was characterized by robustness and coherence.

        From a Hoover Inst. piece on NZ.

        1. That is what we need to do. I don’t blame people for not supporting hap hazard cuts. It makes no sense for them to. But if it is buying onto a program they think will actually do some good, they will support it.

          1. For me the thing is, we may have got into this shape from incremental steps, but we cant get out that way. We must make massive changes all at once, with an understanding that things will be stable for a good while after they are done.

            1. People’s unwillingness to support cuts is mostly the result of them losing faith in our leaders. It is not that they won’t sacrifice. It is that they figure if they don’t get the money someone else will.

            2. I can think of some incremental steps that might help. Lift the earning cap on SS deductions so the tax is not regressive in nature. Eliminate the EIC, it’s pure wealth transfer. I’m sure there are many more “small” things that will not seem massive except as a group. The real problem is getting a diverse group to stand the whole set of reforms.

          2. It bears noting that the radical reforms in NZ were initiated by a Labour Party (i.e., nominally socialist) government, after the welfare-interventionist state reached its apex under a National Party (i.e., supposedly conservative) government. So maybe there’s hope for a Democratic-ruled America?

  9. The answer is clearly to throw more people in privatized prisons. It’s a free-market job creator in more ways that one.

    1. Shorter Max: “Mommy, can I please take the clothespin off my pee-pee now? It hurts.”

    2. Your non sequiturs never cease to amaze, Max. Not that they are insightful or even intelligent in any discernable way, mind you, just amazing, like watching re-runs of 1,000 Ways To Die…

      1. If that’s not a spoof Max, I’m confused. Not one swear word or anatomical reference?

  10. Let my people go!

  11. how those entitlements were going to leave their children broke

    Social Security is a dubious way to provide benefits for older people, by any kind of libertarian analysis. However, it’s what we’ve got, and is almost impossible to change or repeal, by its very nature. (Well played, FDR, well played!)

    But at the very least we can try to understand it. And not make the mistake of thinking that it can “leave our children broke.” It’s simply real time intergenerational wealth transfer. Real time transfers just can’t “leave our children broke.” Learn it. Accept it. Then start talking about how, and whether, we can ever change it.

    1. Is there really a difference between “leaving them broke” and “leaving them holding the bag on a massive unfunded liability that can only be resolved via a political battle like none seen since the Civil War”?

    2. Real time transfers just can’t “leave our children broke.”

      You’ve got a point, but

      (1) Those transfers cripple their ability to build wealth and accumulate assets, which is a good start on leaving them broke.

      (2) Those transfers are no longer being made solely out of SSI tax receipts. Meaning they are funded by debt, in some part. Which is adding to the brokeitudity of us all.

      1. Thanks R C, the more I thought about it, the more I came to the same conclusion you did (and I only just saw your post now).

        I think your (1) is the one to really worry about.

        The problem is one of growth and productivity. You need to make sure that the younger generations are more productive (assuming an upside down dependency ratio, which we might wind up with: more people wanting free eats than people growing food), and it will all work out. We certainly can’t be “consuming their seed corn.” The rest is just accounting.

        And how do we help productivity? I say, get the government out of the way, and let the natural forces of capitalism work their magic.

        I think Warren Mosler’s stuff is all about how (2) isn’t really a problem. You don’t have to pay back the debt (you just keep turning it over), and the federal government can never become broke.

        1. I agree that the argument about whether or not SS is technically a Ponzi scheme is a distraction and beside the point – the key point is that it’s a particularly perverse policy: a massive income transfer, raised by a regressive tax on some of society’s poorest to the asset wealthiest age-group of Americans: one that does a bad job of improving social welfare while handicapping the advancement of the working-age population. I think they key to reform is to be honest with the public about what SS is; once it is seen as a welfare entitlement, appropriate limitations (means testing, raising age of entitlement etc.) can be put in place.

        2. If future generations are paying more and more of their paychecks in taxes they will have much less incentive to be productive. Why work your ass off if the gov’t is going to take most of it? Why not go on the dole yourself? Look at Greece–there’s no real incentive to work hard because so many of their neighbors are on the dole, cheating on taxes, so you feel like a sucker if you take responsibility for yourself and follow the law.

    3. However, it’s what we’ve got, and is almost impossible to change or repeal, by its very nature.

      SS is a regressive tax that predominately gives out benefits to the rich (no secret that the rich live long enough to receive benefits and the poor less so)

      The road blocks to changing SS are easily over come. The problem lies in the characteristics of our two parties. The progressives have no incentive to repeal it as their base would rather lie to themselves about it and the conservatives are the party of doing nothing.

      The best hope for reform is pointing out how regressive the system is.

      1. You would think that wouldn’t you? But have you ever met a real life left-of-center person who will do anything but put their fingers in their ears and go “I CANT HEAR YOU” if you try to point out how regressive SS is?

        Actually I have met one. About 7 years ago. He was pretty smart, and a nice guy. But that’s it.

  12. I could have sworn that I heard a news blurb on the drive in about a new study showing that over half (58%?) of all Americans are receiving government benefits – a first.

    My google-fu is weak though, and I can find no such reference. Or perhaps I was hallucinating – I am getting on toward “middle age” …

    1. If you define government benefits broadly enough, I suppose you could probably say a hundred percent receive them. It kind of depends on the definition of government benefits.

  13. The thing that really bothers me about this whole entitlement situation, is that it starts to affect my personal outlook on hard work, independence, taking care of my family..the values I learned from my parents. I find myself thinking, how do I get a piece of that action ? All I have to do is give up my old fashioned views on pride, honor, being a man, and suckle at the government teat.

    And then I kick myself in the ass, if I think like that, the bastards have won.

  14. FDR was a racist whose presidency depended on suppressing the Black Vote.

  15. All we need to do is increase benefits so much that it puts people in higher and higher tax brackets, see… than the government takes in more and more money. Its called selffinancingponzimultiplier – I learned about it by reading Noble prize winning eCONomic guys.
    Its the biggest advancement since plastics I tells ya.

  16. Unsurprisingly for this site, not a mention made of the Military Spending. It is apparent that so-called Libertarians have a real problem with that silver spoon hanging out your mouths making you sound like blithering idiots.

    1. If Medicare and Medicaid weren’t going to balloon in cost over the next few decades, the military budget wouldn’t be too much of a concern.

    2. I ditched the silver spoon a while back. It never went well with my top-hat and monocle. Made the whole ensemble too busy. (no homo)

  17. 99 weeks to find a job?! W. T. F.

  18. Unsurprisingly for this site, not a mention made of the Military Spending.

    Yeah, I don’t understand how anyone can write an article about entitlements without discussing military spending. The two are just totally intertwined.

    Asshat.

  19. I have to admit that, as much as I think we need to reform Social Security & other entitlements, I would like to at least get back what the gov’t has been stealing from each & every one of my paychecks since I was delivering newspapers in 4th grade. I expect to be screwed anyway, but it still will piss me off.

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