The Social Trampoline.

In 2012, 46 percent of the US Government’s non-interest spending went to Social Security, Medicare, and Medicaid; by 2030 it was projected to rise to 61 percent.  That is, these safety-net programs either will crowd out spending on other things or force a substantial increase in in government spending over-all.[1]

One driver here is the retirement of the “Baby Boom.”  In 2012 there were 49 million people on Medicare (and presumably s slightly smaller number receiving Social Security).  By 2030, that number is projected to grow to 80 million.

Another driver is high medical costs.  In 2011, Medicare spent $560 billion.  By 2022, Medicare spending is projected to rise to $1.1 trillion.

“Reforming” entitlements really means cutting someone’s income.  Whose ox is going to get gored?

Hoping to avoid this ugly reality, people grasp at straws.  Medicare is already “means-tested” (that is, individuals/couples making more than $85,000/$170,000 a year pay higher premiums).  Raising the Medicare eligibility age from 65 to 67 would cut costs by about 5 percent over the long run because those people are basically still healthy.  Raising the Social Security retirement age to 70 would cut spending by 13 percent by 2060.

Cutting medical costs would involve reducing the incomes of medical personnel, hospitals, and drug manufacturers.[2]  Democrats want to do this through government regulation by bureaucracies subject to pressure from elected representatives.  Yea, right.  Republicans want to do it “through the market:” by giving everyone some miserly sum and making individuals bargain with big corporations.  Yea, right.

Avoiding these fights by just raising taxes on the wealthy could have a certain broad appeal.[3]  However, rich people are adept at defending themselves.  Even if they had to put up with higher taxes for a while, they would eventually get them over-turned.  Democrats are always going on about how high taxes on the rich were commonly accepted for a long time after the Second World War.  Where do they think that the Reagan and Bush II tax cuts came from if not from simmering resentment of high income earners?

The simplest fix for Social Security would be to raise or remove the cap on payroll taxes on incomes over $110,000 a year.  That would solve the problem for 75 years at least.  Additionally, reducing inflation-indexing of Social Security could save a lot of money.  Depending on how far it was pushed, this could save $100 billion over ten years.  Probably one would have to do both to limit the political reaction by high-income earners.

One argument against raising the retirement age is that it would disproportionately penalize lower class and middle class people.  They generally don’t live quite so long as do rich people.  So, it would cut into their retirement “golden years.”  Doctors and nurses aren’t going to want to give up a big chunk of their income.  Rich people aren’t going to want to pay an even more disproportionate share of taxes.  “Baby Boomers” have a notion that they have a bargain with America and that America needs to honor its “promises” to them.  However, the truth is that they promised themselves these benefits and that they promised that a younger generation—which had no voice in the bargain—would pay the costs.  The simple human truth here is that people are selfish.  Not much sign of civic solidarity.

[1] “Fixing the safety net,” The Week, 21 December 2012, p. 9.

[2] See: “Single Payer.”  https://waroftheworldblog.com/2016/05/17/single-payer/

[3] “A poor man with a ballot box can rob you as easily as a rich man with a pen.”—Woody Guthrie.

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