Reply #41: Stop the “Entitlement Crisis” Fear-Mongering

[Demeter]

http://www.ourfuture.org/blog-entry/2009052012/stop-entitlement-crisis-fear-mongering

By Bernie Horn

Today, the trustees of the Social Security and Medicare systems issued their annual reports and, as expected, the occasion has prompted the usual suspects to reiterate their fear-mongering misrepresentations about an “entitlement crisis.”

Let us be clear (and truthful): Social Security is not broken, and Medicare can only be fixed by comprehensive health care reform.

The Trustees project that Social Security’s trust fund reserves will be exhausted in 2037. If absolutely nothing is done over the next 28 years, the program would then pay about 75 percent of scheduled benefits, rather than full benefits. There is no crisis requiring immediate action. Medicare, on the other hand, will exhaust its trust fund for hospital expenses by 2019 unless we work to get skyrocketing health care costs under control.

To understand the fear-mongering, let's review the way these programs are funded.

Both programs are financed by workers and employers, each paying a flat tax of 6.2 percent of an employee’s salary for Social Security and 1.45 percent apiece for Medicare. The Social Security tax applies only to the first $106,800 a worker receives (a ceiling that floats up with inflation every year) while the Medicare tax has no ceiling. Because the payroll tax receipts far exceed the program’s expenses, the excess has been invested in U.S. Treasury securities—more than $2.5 trillion so far. U.S. Treasury securities are widely considered the safest investment in the world, which is why China and Japan have invested nearly $1.4 trillion in such securities.

According to the Trustees’ reports, Social Security payroll tax income will continue to exceed expenses until 2017. At that point, when the Trust Fund is projected to have $3.6 trillion in assets, the government will have to start redeeming investments in Treasury securities in order to pay retirees. Drawing down these assets will keep the program running with full benefits for nearly three decades. The cost of Medicare will exceed tax revenues this year and that Trust Fund will be depleted by 2019.

So Medicare is a problem, but only because health care costs have far exceeded inflation for years. It’s a problem not only for Medicare, but for all public and private health insurance. Rising health care costs cannot be controlled in a vacuum. The only solution is comprehensive, national health care reform. In other words, the Trustees’ Report for Medicare is a loud and clear warning that our nation has no choice but to enact a universal health care plan as soon as possible.

But why are the Chicken Littles (congressional Republicans, the Peterson Foundation, the Washington Post, et. al.) crying that the sky is falling on Social Security? Because, starting in 2017, the federal government will have to find the revenues to pay back Social Security’s investments—and they don’t want it to be an occasion to tax the rich!

But that’s the only fair thing to do. American workers have paid this regressive payroll tax throughout their lives based on the promise that they’d get the money back in retirement. The payroll tax was increased on all workers in 1983 with the understanding that a surplus would be built up and then paid down. A deal is a deal. It would be grossly unethical for the nation to break its contract with workers by increasing the payroll tax on average Americans or cutting their Social Security benefits. Besides, the wealthiest Americans have gotten a tax break all along because (1) they paid no payroll tax for income earned over the ceiling, and more important (2) they paid no Social Security tax at all on investment income.

During his campaign for President, Barack Obama suggested that the Social Security payroll tax should be expanded to apply to earnings above $250,000 per year, which would affect only the wealthiest three percent of Americans. That’s one possible course of action. Another course is suggested by Nobel Prize-winner Paul Krugman—don’t do anything to Social Security. As he points out:

Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?

It should be obvious that every American deserves a secure retirement. Retirement security is an essential part of the American Dream. Today, less than half of workers participate in a retirement plan, and only a fraction of them have access to a traditional kind of pension that guarantees income in retirement. So in the absence of some other national retirement system, it would be morally wrong to raise the tax on middle-income workers or cut Social Security benefits.

Yet, that is exactly what many Republicans and Democrats want to do. The SAFE Commission Act (H.R. 3654 by by Reps. Jim Cooper, D-Tenn., and Frank Wolf, R-Va.; and S. 304 by Sens. George Voinovich, R-Ohio, and Joe Lieberman, I-Conn.) would create a commission that would recommend tax increases and benefit cuts for Medicare, Medicaid and Social Security, and require Congress to bring the commission’s recommendation to an up-or-down vote without opportunity for amendments. House Majority Leader Steny Hoyer has endorsed the concept of this undemocratic commission. (Speaker Nancy Pelosi has said she opposes such a commission.)

The Economic Policy Institute reminds us that Social Security is the very cornerstone of retirement in America. More than 49 million Americans receive Social Security benefits, including more than 90 percent of the elderly. Social Security provides 73 percent of the typical retiree’s income, compared to 17 percent from pensions and 10 percent from savings and other sources. AARP points out that without Social Security, more than 35 percent of Americans aged 65 and older would be living in poverty.

A nation’s greatness is defined, not by its military might, but by how it treats its most vulnerable citizens. Let’s aspire to greatness.

The writer is a Senior Fellow at Campaign for America’s Future and author of the book, "Framing the Future: How Progressive Values Can Win Elections and Influence People."



Status of the Social Security and Medicare Programs
A SUMMARY OF THE 2009 ANNUAL REPORTS
Social Security and Medicare Boards of Trustees

http://www.ssa.gov/OACT/TRSUM/index.html