WE DO NOT HAVE AN ENTITLEMENT PROBLEM, WE HAVE
A REPUBLICAN PROBLEM
You do not have to be a Fox News regular to
know that Republicans view entitlements to be the economy’s greatest threat. What is more surprising is
how many Democrats have bought into that meme—at least in so far as to the
necessity of reforming Social Security and Medicare. But, do we have an
entitlement problem?
The Social Security trust fund, together with
payroll taxes, is sufficient to cover program benefits for more than the next
20 years. Moreover, assuming no
additional funding, currently scheduled payroll taxes can provide benefits
equal to those now provided, even adjusted for inflation, for the indefinite
future. Given all the real economic problems we truly must address now, there
is no legitimate argument for even
considering Social Security modifications until the economy is fully back on
its feet and long-term costs and revenues can be more accurately projected.
The Medicare trust fund was actually “going
broke” when Pres. Obama took office, due in large to changes pushed through by the Bush administration. At that time, the trust fund was projected to be exhausted by 2016.
However, the ACA (“Obamacare”), rather than taking the much vaunted $716
billion out of Medicare, actually added that amount to the Medicare trust fund; which is now projected to last until
2024. In one fell swoop, two thirds of the Medicare shortfall was eliminated. Eliminating
the remaining one third could be even easier; for example, The Senior Protection Plan contains $385 Billion in Health Care Savings Without Harming Benefciaries, http://www.scribd.com/doc/112712580/The-Senior-Protection-Plan. The relative ease of these Medicare fixes, and the fact that the small Social Security issues remaining are far
beyond our legitimate planning horizon, why then all the hysteria about
entitlements eating our children and grandchildren? In a word—TAXES.
Everyone knows that Ronald Reagan reduced income taxes (more
than one half for the wealthy); what is less commonly understood is that he
extensively offset this by raising payroll taxes(more than double for most
self-employed). Today, most American families pay more in payroll taxes than
they do in income taxes. Between 1946 and 1981, income taxes averaged 12(+/-1)%
of normalized GDP. Reagan reduced income taxes to near 9%. Clinton increased them back to
12%; and Bush/Obama reduced them again to 9 %( and below). However, on budget expenses (which exclude
Medicare and Social Security) have remained 12(+/-1)% of normalized GDP throughout. The deficit in income taxes has been financed
by borrowing, largely from the Social Security and Medicare trust funds. When Clinton raised income
taxes back to 12%, this eliminated the on budget deficit. The CBO projected that this, plus the Social Security and
Medicare surpluses, was enough to pay off the entire US debt before the Social Security/Medicare trust funds
would have to be amortized for beneficiary payments, all without having to
raise any taxes to pay for the amortization of those trust funds. Like Reagan
before him, Bush
took those excess payroll tax receipts and gave them “back” as income tax
reductions, heavily weighted to the wealthy–who didn’t create those surpluses
in the first place. By doing this, Bush guaranteed that
income taxes would have to be raised in order to amortize the trust funds. Although
the Republicans like to talk about those “47%” who in large part pay only payroll
taxes as being supported and subsidized by those who pay income taxes, the
truth is the opposite; ever since Reagan, income taxes have been subsidized by
payroll taxes; and the failure to raise income taxes to pay back that subsidy,
is to steal the money that
middle-class workers have had taken out of their income to pay for their
retirement.
Hence, the only problem we have with entitlements is paying back the money that we
borrowed from the Social Security and Medicare trust funds. This requires that
we raise income taxes in the short term to 12% to cover normal on budget
expenses. And, as soon as the economy recovers, we must raise taxes above 12%
to pay back the trust funds. This is why the Republicans refuse to discuss
raising income taxes; they would much prefer to steal workers retirement funds,
and reduce the entitlements paid for by them. We do not have an entitlement
problem, we have a Republican problem.
