In Congress, there is a general split among Members when it comes to spending – those who are willing to take steps to prevent a fiscal crisis, and those who are not. Most Members recognize the unsustainability of continuous large deficits, but too many in both parties are unwilling to take political risks in solving the problem. Others are ideologically supportive of certain programs, regardless of their costs. Republicans often will not cut defense, for example, and Democrats will often not cut entitlement spending.
This split is often seen off of Capitol Hill as well. However, on Sunday night, Politico reported that at least two prominent liberal think tanks have come out in support of policies that at least partially address the most important part of the federal budget: Social Security and Medicare, which are currently one-third of the federal budget and growing.
Tea Party activists won’t like all of the proposals – more than one consists exclusively of tax increases, for example – but it is encouraging to be reminded that, the power of math is not always ignored in Washington.
Here are the proposals, with a brief description following each one, along with an estimate of its savings. Analysis of each proposal comes after the list:
Social Security: Chained CPI, $112 billion: Changes the way Social Security is calculated by tweaking the consumer price index.
Social Security: Lift cap on taxable earnings, $500 billion or more: Eliminates the cap on taxes, which combined with a deal to reduce benefits could reduce spending by $500 billion or more.
Social Security: Change the benefit formula, half the Social Security shortfall: Means-test the program so upper-income seniors would receive less, essentially turning Social Security into a support system for poorer seniors.
Medicare: Expanded means-testing, $20 billion: Charge higher premiums to wealthy seniors to offset some costs of Medicare.
Medicare: Faster payment reforms, $10 billion: Institute certain payment and other reforms found in Obamacare more quickly, in imitation of successful private-sector organizations like the Mayo Clinic.
Medicare: Drug rebates, $135 billion: Require drug companies to pay a rebate for people on Medicare and Medicaid.
Unfortunately, each of these proposals has significant weaknesses:
Chained CPI has a great amount of support among Democrats. Politico notes that President Obama, two liberal think tanks, and House Minority Leader Nancy Pelosi (D-CA) have all supported variations of this proposal. The negative side of this is how it will take away money seniors have forcibly (i.e. federal law) “invested” for their retirements. Of course, money will vanish Enron-style when the program’s trust fund runs out sometime in the next 20 years.
Lifting the cap on taxable earnings has a couple of major flaws. First, this is a tax increase, and raising taxes has been a promised and failed panacea for liberals on Social Security for decades. Second, Politico’s headline claim that raising taxes would save $500 billion in Social Security deficits is countered in the description, where it’s noted the taxes plus another deal would be worth $500 billion.
Changing the benefit formula is a popular solution. Politico reports that this is a proposal with much support on the Republican side of the aisle, including by Rep. Paul Ryan (R-WI). This is essentially means-testing, or turning Social Security into a support system for poorer seniors rather than a full retirement system for all Americans. However, wealthier seniors are already being given a raw deal on Social Security, at least compared to how much they “invested” over their lifetimes. So while means-testing is a supportable idea, the continued scalping of the wealthy is going to cause other harms in the long run, especially if taxes continue to rise.
Raising Medicare premiums has at least two major problems. First, higher premiums are a tax increase. Second, while Medicare is in worse financial shape than Social Security – and will need severe changes within 12 years if nothing is done – cutting $20 billion will do almost nothing to prevent the program from going bankrupt. It is a drop in the bucket compared to Medicare’s budget.
Experiments are popular with many centrist and liberal Members of Congress and policy wonks. While these experiments could replace some of the support by Democrats for the Independent Payment Advisory Board, the rationing board in Obamacare, note the key word: experiments. The fact is, the payment reform movement in health care is very theoretical, and could cost more in the long run, as appears to be happening with electronic medical records. While payment reforms have some success in the private sector, even organizations that have successfully implemented it have pushed back against the micro-managing style of the Obamacare payment reforms.
Drug rebates would indeed save money, but it would have the effect of expanding the terrible government policy which tells companies when they have made too much money. It also could lead to some kind of Big Government/Big Business deal that is bad for the country, as we saw with the individual mandate/pre-existing conditions deal in Obamacare.
In the end, few of the ideas discussed above will actually prevent a fiscal collapse of either Social Security or Medicare, or actually move the nation towards a freer market and prevention of overspending. This is due to both the lack of quality of the proposals, as well as how they are based upon official government projections of Medicare and Social Security, both of which are notoriously inaccurate. However, it is encouraging to see that many who typically support more government spending recognize at least some of their most cherished programs must be changed in order to prevent harm to future generations, even if their proposals are greatly flawed.