Reform now, for day of reckoning coming
By Damon Cline
You may not be around after 2033. But your children and grandchildren probably will.
And they likely will wish you and your peers had done something to fix the nation’s decades-old entitlement programs – Social Security, Medicare and Medicaid.
Because by 2033, those programs – along with federal debt payments and America’s newest entitlement, Obamacare – will consume every dollar of federal revenue.
Nothing left for national defense, transportation, scientific research, space exploration or the FBI. Nothing.
Today, the debt- and payroll tax-funded entitlement programs already siphon off half of all federal revenue. The figure is closer to two-thirds if means-tested federal welfare programs are factored in.
“The country cannot and should not sustain the current course of excessive spending and borrowing,” writes The Heritage Foundation in its 2017 Blueprint for Reform policy agenda.
Social Security, the oldest of the entitlements, already is bankrupt. Its trust funds contain only IOUs – “a chit in the drawer’ somewhere in Washington, D.C. that implies the federal government owes that money to Social Security recipients,” Florida-based economic consulting firm Capital Formation Counselors, Inc. notes in a recent report.
Each generation to date has been promised more in benefits than they contributed in payroll taxes. That was fine in 1950, when 16.5 employees funded every recipient, but not today, where the worker-to-recipient ratio is about 3-to-1.
The year 2033 also marks the final year Social Security can pay full retirement benefits. Sans reform, the Congressional Budget Office in December estimated benefits would be cut 31 percent in 2034 – 10 percentage points higher than its 2014 estimate.
Financial advisors have long told clients not to fully count on Social Security in retirement.
“Whenever I do a comprehensive financial plan with clients, we automatically cut the future Social Security benefits 25 percent to 30 percent,” Rose Swanger, an advisor with Knoxville, Tenn.-based Royal Alliance Associates told investment site ThinkAdvisor. “…If by the time they retire they are still able to receive 100 percent benefits, good for them.”
Equally broken are Washington’s 52-year-old health programs – Medicare, for those 65 and older (and young people with certain disabilities), and Medicaid, a federal-state program for the poor.
Both are based on bureacratic central planning and unlimited spending that guarantees neither access to quality care nor incentives for price-based competition.
The 2010 passage of Obamacare only compounded the problem by adding 20 million more people to the government-run health care rolls. Most enrollees were put into an expanded Medicaid program, with the rest receiving subsidies to buy private insurance through state exchanges, which last year saw premiums skyrocketed in 46 states by as much as 116 percent, according to the Department of Health & Human Services.
Central to all of Obamacare’s flaws is the requirement that people with pre-existing conditions pay no higher premiums than healthy people. That is why the unpopular individual mandate had to be included: to force the young and healthy to buy something they don’t want or need.
And because the government defines what qualifies as “insurance,” those who already had coverage they liked found out – contrary to President Obama’s repeated assertions – that they couldn’t keep it.
No wonder Charles Blahous, a former trustee of the Medicare and Social Security systems, calls Obamacare “the greatest act of fiscal irresponsibility ever committed by federal legislators.”
The health care programs, much like Social Security, will not be fixed with simple tweaks that have enabled lawmakers to kick the can down the road.
Tough choices are ahead, and though politically unpopular, they are necessary to keep future generations from paying a debt they didn’t ask for and can’t afford.
“Some people may have to get their health care in different ways,” says Michael Tanner, a senior fellow at Cato Institute. “And some, who can afford it, may have to pay more.”
Damon Cline is the business editor of ‘The Augusta Chronicle’ in Georgia.
America has always cared for its elderly and poor. Thomas Jefferson and Benjamin Franklin, in particular, wrote extensively on safety nets for people unable to provide for themselves because of their age or health.
But welfare services were a function of local governments, which enabled aid givers to know those they helped and prevented freeloading.
The safety net was federalized and bureaucratized in the 20th century with the establishment of Social Security, Medicare and Medicaid – programs that had been in financial straits for decades by the time the Obama administration and Democrat-controlled Congress exacerbated the problem by passing Obamacare in 2010.
Unless changes are made, “entitlement” spending will eat up every dollar of the federal budget by 2040.
Social Security — the one you pay into your whole working life and therefore have an unquestioned right to receive back – is already bankrupt, thanks to Congress “appropriating” your retirement savings for ongoing federal operations.
There used to be 16 workers for every Social Security recipient; now there are only three — even as benefits grow for each generation.
First things first: We must demand that Congress stop raiding our Social Security retirement savings. If a business owner were diverting an employees’ pension fund to operate the business, he or she would be in prison.
Payroll taxes should be reduced to allow individuals to save more on their own for retirement and disability.
Public policy groups recommend increasing retirement ages to account for longer life and work expectancies while transitioning to a means-tested benefit system.
Where practical, allowing for privatization of at least a portion of young workers’ Social Security savings ought to be explored.