Tag Archives: Social Security

And There’s Nothing To Be Done

Our nation finds itself in the midst of two significant discussions right now.  The first is about how to resolve the so-called “fiscal cliff”, the wholly manufactured end-of-the-year crisis created by the utter inability of our elected officials in Washington to get the basics of their job completed in a reasonably competent manner.  The second is about what to do in response to the spate of mass shootings that have taken place in the second half of this year, culminating in the slaughter of 26 in Newtown, Conn. a couple of weeks ago.

What strikes me about both conversations is that one side of the aisle has shown a tendency to throw out ideas they don’t like solely on the basis that such ideas don’t solve the entire problem.  Take, for instance, Mark Thiessen’s column in today’s Washington Post.  Thiessen argues that since President Obama’s proposed tax increase on high-income Americans won’t close the deficit completely that we shouldn’t do it.  Or, better yet, we should raise taxes on everybody just to teach them a lesson!

Sorry, taxing the rich won’t solve our problems — that’s nothing but fiscal snake oil the president has been selling. He is demanding $1.3 trillion in higher taxes on the wealthy over 10 years. Imagine he got it. We are adding nearly that much to the national debt every single year. Taxing the rich would not put even a minor dent in our debt. It would pay for less than three weeks of federal spending every year. The only way to pay for the current expansion of government is to raise taxes on the middle class.

So let’s do it.

But such arguments have also found a home in the debate about whether or not there should be additional gun control measures should be enacted following Newtown.  Here’s an example of such an argument from the National Review’s Rich Lowry:

How many guns are in the United States? The answer is 280 million. In a country with that many guns, how is gun control possibly going to succeed? If you ban a small subset of new guns for sale, what are you going to do about the rest? Let’s say you succeed beyond anything that is remotely possible. Let’s say you somehow stop the new sale of guns altogether and somehow decommission half of existing guns. What are you going to do with the other 140 million guns?

There are numerous problems with such specious lines of argument.  The first, and most obvious one, is that proponents of such ideas are not and have not suggested that these solutions — be it taxing the rich or banning high-capacity magazines — are complete solutions to the problem.

But these arguments are even more dishonest in another way.  As we’ve discussed before, these sorts of arguments are just other ways of framing the debate to protect entrenched interests at the expense of everyone else.  Thiessen and conservatives may be opposed to Obama’s tax increase on the wealthy, but their proposals are equally (or even more) inadequate in addressing the nation’s fiscal challenges.

For instance, over the last month, Speaker of the House John Boehner has included in his proposals provisions that would change the way inflation benefits are calculated for Social Security recipients and he also proposed increasing the eligibility age for Medicare from 65 to 67.  Combined, these two proposals would reduce the deficit over the next decade by less than Obama’s tax increase on the wealthy.  And, of course, Boehner’s proposals would have very real consequences for the low- and middle-income people impacted by them.  The Social Security change alone would decrease payouts to recipients by 0.3% per year.  After a decade, recipients would have lost 3% of their payouts.  That’s significant, given that 40% of retirees have 90% or more of their income from the program.

Meanwhile, those who oppose any additional gun control measures have thrown nearly anything and everything out to bolster their case.  Just look at the National Rifle Association.  In the 1990s, they called federal law enforcement officers “jack-booted thugs”.  Today, they’re calling for the federal government to fund armed guards in every school in the country.  And, they call for a database of the mentally ill without calling for a database of gun owners to cross-reference it against.  Putting the Second Amendment ahead of the rest, I suppose.

Closer to home, you have state representatives who ignore facts that don’t support their frame of reference.  The notion that the potential presence of an armed individual deters such mass attacks is bogus, even if you ignore the Columbine example.  In recent years, we’ve seen shootings on an Army base and in the state with the least restrictive concealed-carry laws in the nation and on a college campus that had its own police department and SWAT team.  And, just today, inside a police station.

The challenges we face are far too large to be dragged down by reasoning that is so small.  We can have an informed and reasonable debate and talk about a wide variety of solutions without engaging in debate that is intellectually dishonest to its core.  We should expect better of all of our elected representatives.  We may not be able to solve every problem completely, but some progress is better than none.  So let’s get on with it, already.

(Image above is Francisco de Goya’s And There’s Nothing To Be Done, courtesy of The Metropolitan Museum of Art, which depicts scenes from the Spanish War of Independence.)

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Elites agree: it’s time for you and your kids to pay for their failures

Today’s POLITICO has one of those only-in-the-Beltway kinds of stories that make you wonder if there’s any signs of life there at all.  Reported by Jim VandeHei and Mike Allen, it’s a synthesis of elite opinion (lawmakers and staffers from both sides of the aisle, as well as business executives) about what needs to be done to get our economy back on track once and for all.  Now certainly, there’s some good stuff in there — expanding immigration for high-skilled workers, for instance, is something that is long overdue.  But let’s be clear here.  The elite agenda for “fixing” our economy calls for significant doses of sacrifice from the middle class and working poor and precious little sacrifice from them.

Let’s start off with the sacrifice that the elites are willing to make — an increase in taxes for those making over $250,000 a year.  This would raise the top marginal tax rate (on income over $250,000) from 35% to the Clinton-era rate of 39.6%.  That’s certainly something, although one could fairly argue that returning to the tax rates that coincided with the best period of economic growth this country has had in the last 20 years might not be the worst thing in the world.  But let’s look at what isn’t on the table.

Changes to capital gains taxes?  Nope.  They’ll continue to get their much lower rate, meaning that folks like Mitt Romney or Paris Hilton who live off of investment income will continue to pay tax rates in the 15% range — lower than many middle-class and working poor families.  Not only that, but hedge fund and private equity investors will still get to treat their regular earnings as investment income instead of wage income, saving some individuals millions in tax liability every year.

Taxes on financial transactions or financial speculation?  Nope.  In the wake of the financial market meltdown in 2008, some suggested using a transaction tax on stock or bond transactions or higher rates on short-term capital gains as a means to both discourage speculative activity that makes the markets more volatile as well as creating a fund to deal with the damage created by current (and future) market failures.  These are still not on the table.

Breakup of the largest financial institutions?  Nope.  The 2008 market meltdown required government intervention to prevent the collapse of institutions deemed “too big to fail”.  What largely happened in these cases is that other large banks ended up buying the failing banks.  So an industry that was already unduly concentrated and prone to risk has become even more concentrated and even more prone to risk (despite some of good provisions in Dodd-Frank).

All of these items would represent real sacrifice for the elites in our society, but they’re not on the table.  What are they asking of the middle class and the working poor?  Oh, not much, except the gutting of perhaps the two most effective government programs at providing income security and health care to Americans.  Banks and financial institutions get bailouts when they make bad decisions.  Now the government is poised to give you insecurity when you retire after decades of hard work.

Sacrifice for thee, not for me

Medicare is the largest contributor to the future deficit problem due the explosion in both the number of seniors citizens and the continuing rise in health care costs (at a rate much faster than inflation in the rest of the economy, which means it will have to be part of the solution.  But there’s smart ways to reform Medicare and stupid ways to reform Medicare.  As befits our current political dialogue, the ones that are being debated are the stupid ones.

One of most likely changes to Medicare is an increase in the age of eligibility from 65 to 67.  At a base level, this doesn’t sound like that big of a deal.  Well, the problem is that in trying to save the federal government a little money, we’re going to end up spending a lot more overall.  Increasing the age to 67 would save the federal government about $5.7 billion a year, but would raise individual out-of-pocket expenses by $3.7 billion, and increase the insurance premium expense for employers by $4.5 billion.  Already, we’ve made the overall system less efficient by $2.5 billion, but we’re not done yet.  Adding 65- and 66-year-olds to the general health insurance pool is going to make everyone else’s health insurance more expensive (because the overall population will be sicker) — that’s another $2.5 billion.  Finally, states are going to have additional health expense on some of these seniors totaling about $0.7 billion.  If you total it up, the financial cost to society of changing the Medicare eligibility age is twice as large the savings we would see in the deficit.  That’s not a good trade-off.  (And that’s before we look at some of the non-financial impacts.)

There are smart ways to save money — significant money — in Medicare going forward.  We can end fee-for-service payment policies and replace them with paying providers for results.  We can give Medicare enhanced power to negotiate prices with suppliers — particularly for prescription drugs.    We can research the statistically most effective and cost-efficient ways to treat conditions and encourage providers to use those guidelines.  These are the types of reforms that we should be pursuing.

Perhaps even more galling in the context of the current budget debate is the fact that Social Security is getting dragged into the mix.  Social Security contributes nothing to our nation’s current budget deficit.  In fact, Social Security ran a $69 million surplus in 2011 and is projected to run surpluses for the next decade.  We have 20 years before the Trust Fund is exhausted (under current projections), and the simple act of removing the cap on the payroll tax would resolve at least 95% of the projected deficit going forward.  And if we did nothing, the cost of filling the gap after the Trust Fund is exhausted is less than 1% of GDP — a relative pittance compared to Medicare.

Instead, we’re seeing the same shortsighted tactics on Social Security as we are on Medicare.  What’s on the table is an increase in the retirement age from 67 to 70, and changing the way inflation is calculated so that such increases would be smaller than they are today.  These changes would have severe negative impacts on future retirees, but they would only raise 1/3 of the money that removing the payroll cap on the wealthy would.  Yet, no one’s really talking seriously about major reform to the payroll tax cap.

Big bad ideas

These reform plans for Medicare and Social Security are based on two big ideas, both of which are misguided.  The first bad big idea is “People are living longer, so increasing the eligibility ages is no big deal!”.  And while that’s true, it’s not true in the same way for everybody.  Wealthy Americans have seen their life expectancies improve by six years since 1977, while folks in the lower half of the income distribution have seen only an increase of one year in that time period.  These workers are more likely to be in blue-collar industries that are more reliant on physical labor.  Working in those jobs in their upper-sixties with questionable health insurance just isn’t a winning proposition.

Source:  The Incidental Economist

Source: The Incidental Economist

The other really bad big idea in these plans is “We have to protect current seniors”.  It’s certainly true that low- and middle-income seniors shouldn’t be expected to see substantial changes to these programs.  But if this is the kind of crisis that makes one of our political parties willing to risk defaulting on our bonds, maybe rich seniors should make some sort of contribution to solving the problem?  Certainly, there are wealthy seniors (and seniors-to-be) who could afford to pay co-pays for Medicare or take some means testing on their Social Security check today.  It hardly seems fair to think that the bill for this financial mess should be borne primarily by the children and grandchildren of those who ran up the credit card in the first place.  If we’re not willing to require any sort of contribution by today’s seniors (and seniors-to-be) to solving this crisis, aren’t we in fact admitting that it isn’t a crisis and just a problem that needs to be addressed in a reasoned manner?

Passing the buck and the bill

And it gets worse yet.  Many of the elites pushing these sorts of “solutions” to the problem are simultaneously pushing for so-called tax reform that would lower corporate taxes.  David Cote, the CEO of Honeywell, has been one of the key public faces behind Fix the Debt, a business organization that has made a large effort to influence the debate.  Cote loves to talk about tax reform as a part of this process, but what he doesn’t like to talk about is that he’s really trying to eliminate the corporate income tax.  If corporate taxes are eliminated, guess who’s going to get the bill to make up the lost revenue?  (Hint:  It’s not David Cote.)

I’m not opposed to tax reform.  But tax reform shouldn’t consist of a series of handouts to one group while demanding sacrifices from another.

And guess what else isn’t on the table as part of these negotiations?  Any real attempt to focus on the unemployment problem.  Basically, at this point we’re left to hope that if the elites get their way and extract the appropriate sacrifice from everyone else that the certainty created by such maneuvers will suddenly convince business owners to start creating jobs.  Of course, that notion in and of itself is misguided.  Businesses don’t create jobs out of certainty — they create jobs because there is demand for their product and services.  To create demand for their products and services, we need to have a population that has jobs and disposable income to spend.  Cutting Medicare and Social Security while squeezing government spending through austerity does nothing to improve the employment picture or improve household income.

We have a medium- to long-term deficit problem that needs to be addressed.  The important thing we need to remember is that it’s far more important to do the right thing for all of our citizens than to just earn political scalps by “raising taxes on the wealthy” or “cutting entitlements”.  These problems are about more than numbers on a spreadsheet — they have real world impacts that CEOs or lawmakers or writers for Washington D.C. political journals will never have to deal with.  It’s time for the voices of those who don’t attend Georgetown cocktail parties to be heard as part of this process as well.

Our “Entitlement Society” by the numbers

A common theme you hear from Republican politicians these days is that government’s growing entitlement programs are creating a large permanent class of people willing to live off of government benefits instead of working.

In an Entitlement Society, government provides every citizen the same or similar rewards, regardless of education, effort and willingness to innovate, pioneer or take risk. – Former Massachusetts Governor Mitt Romney

The good news for us is that there’s data we can use to evaluate those claims, and that’s just what the Center for Budget and Policy Priorities did.  The bad news for Republican politicians is that their claims don’t hold up when you look at the data.

The CBPP looked at the 11 largest federal entitlement programs, which represented 88% of entitlement spending in the 2010 budget — a total of $1.83 trillion.  Included are Social Security, Medicare, Medicaid, unemployment insurance, the Earned Income Tax Credit, and the Child Tax Credit, among others.

Here’s how the spending broke down:

53% of entitlement spending went to the persons over the age of 65 (primarily through Social Security and Medicare).  20% went to those under the age of 65 who are disabled, while another 18% went to households where at least one person worked at least 20 hours a week.  3% of the entitlement spending was for unemployment benefits, which require a history of employment in order to be eligible.

Government dependency can only foster passivity and sloth. – Romney

So let’s total it up — 73% of entitlement spending goes to people who we don’t expect to work (the elderly and disabled).  21% of entitlement spending goes to the working poor or people who recently lost employment.  So that leaves just 6% of entitlement spending to people who fall outside those categories.

What sort of spending is in that 6%?  Well, most of that spending is Social Security-related:   survivor benefits for children and spouses of deceased workers and payments to people who elected to retire early between ages 62 and 64.  There’s also some Medicaid expense for the non-working, non-disabled poor.  Those three categories represent two-thirds of that remaining 6%.

In summary, then, you’ve got somewhere between 2% and 6% of entitlement spending that could be being directed at folks who may not really need it — depending on if you want to classify people collecting survivors benefits as passive and sloth-like.  Is this really an “Entitlement Society” or just empty sloganeering?


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