There has been much discussion about what cuts can be made to the budget to make our expenditures sustainable. Interestingly, neither the Republicans nor the Democrats seemed prepared to address the white elephant in the room. If we address only non-defense discretionary spending, we will not reduce the annual deficits or the national debt sufficiently. In fact, entitlement programs, including social security, medicare and medicaid account for 60% of the budget. Today, Congressman Ryan, Chairman of the House Budget Committee has stepped forward to lead.
The discussion of spending cuts must address reform of social security and medicare. This will be a difficult and divisive discussion. It will require and open and candid conversation which is rare (perhaps non-existent) in Washington. It will also require political courage of which there is also a deficit in Washington. Neither party wanted to step forward first. Each was concerned that the other party would take advantage of the opportunity to castigate the other party as the one that wants to destroy the programs our seniors need to survive.
I, and many of my friends, are on social security. I enjoy the monthly payments but, were I to have planned to live without those payments, I could have. I am not a fan of wealth distribution programs or progressive tax programs. I am not a socialist. However, social security is here, it is counted on for retirement support by millions, and it is unlikely to be ended in the near term. That being the case and with a dose of pragmatism, what can we do?
First, we must return as soon as possible all funds that have been stolen from the social security trust fund. When we look for solutions in the budget and debt levels, we have to remove the smoke and mirrors. Second, we must eliminate the payroll cap from the social security tax, even though that increases the costs of a program for people who will likely never benefit from it. Third, we must raise the retirement age. Fourth, the social security payments to our retired citizens must be needs-based. These steps will make the program even more socialistic, but there does not seem to be an alternative. Perhaps we will find a better alternative in the future. For now we must assure there will be a future.
As is the case with social security, I, and many of my friends are on medicare. The program is broken and becomes more broken each day the baby boomers swell the rolls. The problem is also about five times the problem with social security. There are a number of financial and operational issues with the medicare program which will be addressed in another paper. For now, I will only suggest that part of the solution is to increase the income that will support the program. Medicare should be treated just as any other insurance program. Most of us have dealt with our medical needs over time through insurance. When we reach the magic age, we subscribe to medicare and reduce what we spend for insurance. I believe that this must change. Some are better able to pay toward the costs of medicare. Some are not. Therefore, based on income and assets, recipients of medicare should pay premiums that bear a relationship to their ability to pay. Again, we move more toward socialism. Again, I am no socialist. Again, there is no alternative.
The difficulty with entitlement programs, of which social security, and medicare are the majors, is that they all continue to grow, especially with the advent of an aging population. It has been reported that nearly half of Americans live in a household where someone receives government benefits. Approximately 45% of our people do not pay any federal income taxes. A Wall Street Journal poll showed that less than 25% of those polled supported significant cuts to social security or medicare. A significant majority of the tea party supporters also do not support such cuts. Interestingly, a significant majority of those polled did not feel that cuts to medicare would be necessary to significantly reduce the deficit. For social security, 49% did not think significant cuts were necessary to reduce the deficit. In the fight to reduce entitlements, a very large percentage of citizens have little to gain in cuts and little interest in such reductions. The majority of our people benefit from these governmental programs and do not pay taxes. The majority of our people do not approve of cuts in these entitlement programs. Reforming social program is clearly not popular. It is not difficult to see why political courage will be necessary in this discussion.
One day in the dining room in the Parliament Building in Tallinn, Estonia, I had lunch with Mart Laar, the Prime Minister of Estonia. I said that I saw that his ratings in the polls had fallen to 20%. He looked up and said “Good, we must take harder decisions.” This was a leader. He was substantially more interested in the future of Estonia and its people. It will be interesting to see who our leaders are as this issue is debated and who are simply interested in political security.
If we are serious about reducing our unsustainable deficits, we must look to changes in social security and medicare. We need to support these changes and those who propose them. If solutions were easy, they would have been implemented already.
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