By Dan Calabrese ——Bio and Archives--June 3, 2013
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Neither the White House nor House Republicans focused much on the Social Security and Medicare figures. President Obama spoke about stopping interest rates on new federally subsidized student loans from doubling on July 1. He called on extending the current 3.4 percent rate while noting the improving stock market and declining budget deficit. House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) also emphasized their plan to tie the rates to the 10-year Treasury yield. Neither of them tweeted about the trustee report, even though the key Republican talking point for the past two years has been the programs’ troubled financial trajectories. The Republican National Committee quickly declared, “Another year of kicking the Social Security ‘can down the road.’” It quoted Obama as pledging in a 2009 interview with The Washington Post editorial board to improve the sustainability of federal entitlements.Now the Fiscal Times is a lot more charitable to Obama than I would be on this score, buying the notion that ObamaCare has somehow reduced health care costs and pushed the Medicare insolvency date back from a pre-ObamaCare date of 2017. And that's what makes the situation even more frightening, as the piece explains. These dates, frightening as they are, are based on government projections that are very likely to prove overly optimistic:
First of all, current law mandates a 25 percent reduction in Medicare physician payments starting next year. But Congress always passes a “doc fix” to prevent the spending cut, so an appendix to the trustee report notes that Medicare expenses could be higher than noted in the report. Secondly, payroll taxes help fund both Medicare and Social Security, so higher incomes matter for generating revenue to cover the expenses of both programs. The trustees project that average real wages—adjusted for inflation—will be 55 percent higher than today at $68,000. Dean Baker at the Center for Economic Policy and Research noted in a Friday post, “In the last three decades, the vast majority of wage growth has gone to those at the top end of the wage distribution. As a result, workers at most points along the wage distribution have seen little gain in real wages over this period.” Here’s the point: The report assumes that the United States figures out how to do something it hasn’t accomplished since Obama was in his 20s—raise incomes for those squarely in the middle class.This is crucial to understand any time the government offers a long-term projection about anything of a financial nature. The projections always contain assumptions that are obviously not true, like the assumption that there will be no doc fix when everyone knows there is a doc fix every year. And it also assumes growth in middle class incomes for which we have seen no sign whatsoever during the Obama presidency. So how dire is the situation, really? Pretty dire, but politicians still believe it's the path of political least resistance to do nothing about it. Will they really wait until the crisis is beating down the nation's door, at which point they will have long since missed the opportunity to enact a serious restructuring that would have solved the problem? That would be my bet. Wouldn't it be yours?
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