Gearing up for the FightPosted: November 16, 2012 | Author: dakinikat | Filed under: Medicare, Social Security | Tags: "grand bargain", cat food commission, Federal Deficit, fiscal cliff |30 Comments
I don’t think there’s a person in the country that doesn’t know that many folks are gearing up to remove our earned benefits. We should gear up to fight them.
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.
Dak, I was asking what you thought about the Cap in the last thread. From this link.
“UPDATE II: If you really had reservations about the impact of tax rises with this plan, you wouldn’t remedy that by setting the cap at the top. You would exempt the cap in the middle, or better, exempt the LOW END of income. The former was Barack Obama’s “donut hole” plan for Social Security – lift the cap, but continue to exempt income between $110,000 and $250,000. This was really done to hold to his pledge not to raise taxes above that $250,000 marker, but it also shields tax rises from those who would feel the most hurt from a payroll tax increase, while giving back very little funds that would enhance the system. The better option is to lift the cap and exempt as much of the first-dollar income you could while also enhancing the system and keeping it in relative balance. You could maybe exempt the first $10,000 of income this way, which would amount to a big wage subsidy to those who need it, while those who could afford it pay the rest. (Everyone would benefit from that first $10,000 exemption, of course.)”
That part, I wanted you to explain it for me.
I don’t like this because it turns the program into a means tested program and opens it up to the idea that folks on the lower end or exempted or the middle or whatever, from paying for the benefit. The nature of this tax is that you have a lower income, you pay a lower tax, but you also get a commensurate lower benefit upon retirement. The highest benefit is capped along with a level at which the tax quits. If you start exempting people from paying for their benefits then it becomes means tested and more like a program based on helping the poor which is totally not what this plan is about. You can lift the cap a little and not create that situation. Your just making the rich pay more for a smaller benefit and still making every one who benefits most from the old age insurance who need it the most contribute. I don’t really see why every one is worried about people making that kind of money any way. Sounds like another one of those I live in Manhattan and feel poor because I only make $250 k and it doesn’t go far here. Every where else $150 k goes far and $250 k goes really far.
I agree! Anything that makes either Social Security or Medicare look like any kind of a “welfare” program has to be avoided. It’s the surest way possible to get it eventually killed. FDR knew that, which is why it’s arranged like it is now.
Thanks, Dak, I always thought I understood it but have you notice lately people on the left are trying to confuse the conversation?
I think there’s a lot of people writing on economic issues that don’t have a background in economics. And, there’s some “progressives” that really aren’t as progressive as you would think … Matt Stoller comes to mind … they are more libertarian and they don’t argue from a liberal standpoint or even a traditional conservative one.
Agree Ralph, It’s the stuff I grew-up knowing if they ever make it a welfare program and not insurance for all it would go the way of the Do Do. bird.
I really wish it were politically possible to broaden the FICA tax base beyond payroll income.
I think we treat investment income really badly. We shouldn’t be treating dividends differently and we should exempt all income based on interest or dividends at lower income levels, not higher.
We should also not give second mortgages or mortgages for vacation homes or boats tax deduction status.
Can we mount a campaign to nominate you for Treasury Secretary?
It wouldn’t do much good. The congress is full of idiots.
I second the Treasury Secretary nomination! We should also kill some of the ridiculous loopholes like carried interest and the John Edwards S-corp dodge.
We should definitely kill every single loophole that Mitt Romney uses. Let’s take more of his money and use it for good instead of evil.
BB, Agree if it’s Rmoney it has to be evil 🙂
Love your ideas, dakinikat. And “earned benefits” is a great new title for SS & Medi. Yes, we need to change the dialogue…our way.
We’ll see about finding you an idiot smasher. 🙂
We’re agreed. Campaign to write-in, e-mail, twitter, fax, & phone dakinikat for SOT.
OT but this is one great email to Josh Marshall from an Obama volunteer. Wonderful!
What a great email message. Thanks for sharing.
You’re welcome. I found it inspiring.
If we want a balanced budget, how about we take away the social security, medicare and pensions of those have signed with their “secede petitions”………………that way they won’t have to rely on the government, the socialist. Don’t you think this would help the budget.
Here is something fun, lots of pictures of Hillary
25 and 32 are my favorites.
Rachel just covered this HuffPo post from Elizabeth Warren, posted Nov 15th: http://www.huffingtonpost.com/elizabeth-warren/filibuster-reform_b_2136800.html
Really, Republicans would like to help their Wall Street donors by taking away pensions from their voters? (seniors have been voting dependably Republican so far). That’s an even better way to stop winning elections than making all these speeches on how rape is great.
Repubs aren’t known for thinking too far down the road of consequences. Just to the stage of benefits for their donors, I fear.
I don’t understand why any seniors with incomes below the top quintile –maybe the top two– would ever vote for Republicans. Esp’ly since the R’s have been trying to destroy SS ever since FDR proposed it and going after Medicare ever since TR suggested something like it. After made LBJ made it happen, R’s went batshit crazy.
Now they lie about what they want to do to it because it’s so popular…and so utterly necessary.
Big T/U to LBJ! To FDR!
Well, that I can try to explain: Republicans position themselves as a party of good old days, always droning on about going back to Constitution, going back to Reagan, going back to family values, taking the country back, preserving it from communism, immigration, Obamacare, Muslims, et cetera, et cetera. That rhetoric has a natural appeal to older people who are less open to change, even if the change could actually be beneficial to them, or even if proposed “going back/taking back/preserving” is actually a change that would hurt them in the long term.
Kat, this is a tremendously good post even compared to your usual excellence. I am mining it for juicy factoids for several LTEs.
I am so sick of the “entitlement” bullshit. “Earned benefits” it is!
Hooray for “earned benefits”!! Can’t wait to begin to propagate the phrase.