Gearing up for the FightPosted: November 16, 2012 | |
I think we need to adopt “earned benefits” as description for Social Security and Medicare. For some reason, entitlements has become one of those words that’s been co-opted to mean hand-outs instead of the true meaning which is that we are entitled to these benefits because we paid for them all of our working days. Yesterday, Bernie Sanders gave a speech that made it clear what our priorities should be when it comes to any bargain to decrease our debt and deficit.
Deficit reduction is a serious issue, but it must be done in a way that is fair. We must not balance the budget on the backs of the elderly, the sick, the children or the poor.
We need to make it clear to people that Social Security has nothing to do with the deficit. Social Security is not going bankrupt either.
Right now, Social Security does face a long-term funding gap, mostly due to the happy fact that we will be living longer, healthier lives in the future. The gap is quite small, does not appear for 36 years, and if the economy does even a little bit better than expected, will not appear at all. But it may appear. If so, we will have to tweak the system a bit, just as we have in the past. We could take longer life expectancies into account by raising the retirement age. Or, we could levy Social Security taxes on a person’s entire salary, not just the first $84,900 as we do currently. Or, as a last resort, we could very slightly raise Social Security taxes, by a percentage point or so. In any case, these fixes impose a much smaller cost on the typical American worker than exploding health care costs or the continued stagnation of wages — two real, and most importantly, current problems that ought to loom much larger on our national radar screen.
I think the Paul Krugman column today made clear that a lot of myths and memes that we’ll hear in the next few months about our fiscal problems are just myths and memes. Krugman argues against raising age eligibility for either Medicare or Social Security. The people that need the benefits the most and the retirement age have likely done very physical work.
And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.
First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.
Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.
This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.
So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: While the United States does have a long-run budget problem, Social Security is not a major factor in that problem.
Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.
It’s true that thanks to Obamacare, seniors should actually be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.
There are many more things that need to be done to ensure our fiscal health. Messing with Social Security is not one of them. Medicare has issues but most of them could be dealt with by simply allowing the plan to bargain for drug prices. The Bush deal with big Pharma while providing the part B benefits is the major source of Medicare problems. Our federal deficit is primarily the result of our two decade long wars, reckless tax cuts, subsidies to folks that don’t need them, and reduced tax receipts/increased expenditures from our deep recession.
Here’s an example of something that could help with the long term health of social security. Lift the cap. At the very least, the cap should be subjected to an increase that’s adjusted for inflation just like the benefits.
Social Security is not in danger of becoming insolvent any time soon. According to the program’s actuaries, without any changes, Social Security will be able to pay out full benefits until 2033. And there’s reason to doubt that problems will arise even 21 years from now. As Jared Bernstein noted when the latest projections came out, the expected date when the Social Security trust fund will be exhausted has varied wildly over the past few decades.
Yet despite its medium-run sustainability, many deficit reduction plans target the program for cuts. For example, Bowles-Simpson introduces means-testing and raises payroll taxes for high earners, but also cuts benefits across the board by adopting a less generous inflation measure, known as “chained CPI,” and raises both the minimum age where retirees can claim benefits and the age when they can claim full benefits.
As Nobel laureate Peter Diamond has explained, the latter change is hugely regressive, primarily targeting poor workers in physically demanding occupations. Domenici-Rivlin includes the inflation measure cut, means-testing and payroll tax increase, but leaves out the regressive retirement age increase.
But if one wants to make the program solvent indefinitely without endangering vulnerable seniors, there are options. A new bill from Sen. Mark Begich (D-Alaska), the Protecting and Preserving Social Security Act, provides one method.
The Begich bill would lift the current payroll tax cap, which exempts wages in excess of a certain amount ($110,100 this year) from the tax. In turn, it would give high earners, who would pay more, additional benefits upon retirement, just as benefits increase as wages do for workers below the cap.
According to the Congressional Research Service, a change like that would almost entirely wipe out the program’s long-run actuarial imbalance. Specifically, it would eliminate 95 percent of the shortfall, meaning that a mild increase in the payroll tax rate from 12.4 percent to 12.5 percent would be enough to cover the tiny remaining gap. And without any changes at all, the program would be able to pay out full benefits until after 2085. Indeed, the exhaustion date for the trust fund following such a change is so far in the future that CRS didn’t even calculate it.
I’ve always thought that letting folks pay for the privilege of opting into Medicare sooner would help with the Medicare plan. Also, separating the survivor benefits and disabled benefits and charging separately for this coverage would also help secure social security as it was intended to be. Anyway, there are many things to do without hacking away at all the benefits that people have paid for a program that shouldn’t be changed due to myths and memes. Plus, there’s the entire republican agenda of transferring every program–no matter how cost ineffective–to their cronies in the name of their all might gawd Privatization.
We should probably gear up for a fight. It may be necessary to ensure that our Congress critterz understand the importance of these social contracts and that they realize these are earned benefits and not just hand-outs.