The current offensive underway against Medicare by Paul Ryan and the House Republican majority is well known. Less well known is the somewhat hidden undermining of Medicare in the 2010 Obama health bill, that will take effect in a few more years and cost retirees a significant increase in out of pocket costs and caps on benefits. In contrast to Medicare, Social Security retirement and disability programs were, according to the Washington political consensus, to be delayed from cuts until after the November 2012 elections. But there is new evidence that the growing coziness between Obama and mainstream Republicans, on the one hand, and corporate interests on the other is about to result in a new offensive against Social Security before the 2012 elections. What this means is that the old age retirement benefits fund as well as the disability insurance fund programs of Social Security are now, like Medicare, about to become prime targets for cuts in the 2012 budget this fall.
The assault on the disability fund is already well underway. Disability benefits administrative law judges, who decide on granting long term disability benefits under Social Security, have recently come under intense attack for being too generous in granting permanent benefits to the disabled. The new offensive was initiated in the wake of a May 19 Wall St. Journal editorial attacking disability administrative judge, David Daugherty. In the wake of the Journals opening salvo, Republicans and Democrats in the House quickly joined forces calling for an investigation of disability benefits judges in general. In response to the House investigation, the offensive quickly turned even more aggressive. It has now taken on the character of a criminal probe. All this no doubt will have a chilling effect on decisions to grant benefits by judges.
The disability benefits trust fund is a prime and easy target from which to attack Social Security across the board. The disability fund pays out $124 billion in benefits to 10.2 million in 2010. That’s a juicy cost-cutting plum.
Rumors now abound that Obama’s golf summit with House majority Republican leader, Boehner, will discuss Social Security cuts as part of a larger understanding of broad federal budget cutting in the 2012 budget starting next October. Obama is apparently willing to use Social Security as a bargaining chip now, instead of waiting for a second term.
Obama’s new soft position on Social Security in general was evident in his last December 2010 decision to reduce the payroll tax by 2% for workers. That resulted in more than $100 billion shortfall in revenue for Social Security this year alone, when the chronic jobless problem24 million still out of work for three years now has already meant a major falloff in Social Security revenues for its various funds for the first time in decades. The 2% cut in the payroll tax was supposed to boost consumption, but it hasn’t. Estimates are that 60% of the 2% payroll tax cut last December has already been absorbed by oil companies to pay for $4 a gallon gasoline.
Not deterred by this fact, the Obama administration nonetheless in recent weeks has begun floating the idea of cutting the employers 6.2% share of the payroll tax, giving yet more income to business that has been sitting on a cash hoard of $2 trillion and not investing in the US and creating jobs. The logic why corporations need still more cash from a payroll tax cut in order to invest is unconvincing. This second cut will drive the Social Security retirement and disability funds further in the red, making it even more convenient for those who argue for cuts now instead of after 2012.
With the imminent new offensive against Social Security in the air, groups like AARP last week did an about face. AARP led the defense against Bush Jr. attempts to privatize Social Security last decade. Now, however, they are jumping on the cut Social Security retirement benefits bandwagon. As the Wall St. Journal recently gleefully noted, AARP is dropping its long standing opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nations entitlement programs. Does anyone believe AARP hasn’t discussed this already with the Obama team? That some kind of new consensus to cut early and deep is being formed?
The most recent 2011 report by the Trustees of the Social Security program stated that the retirement benefits trust would run out of revenue to provide full benefits to retirees in 2036, after which only 77% of benefit levels could be paid. The Medicare trust will run out of funds for full benefits earlier, in 2018.
The Obama-Republican-Corporate Solutions
Republicans, Obama and Corporate interests are proposing to solve the Social Security retirement/disability benefits and Medicare benefits problems with the following measures:
1. Raise the retirement age to 70, which would cover 28% of the projected shortfall
2. Eliminate the annual cost of living benefit increases for retirement benefits, which would cover another 23% of shortfall.
3. Make new state and local government workers go into the social security system instead of receiving negotiated state-local pension plans, saving another 7%
4. Reduce benefits for middle income retirees and significantly for higher income retirees, raising another 39%.
Those four measures would amount to 97% of the projected shortfall and make the retirement benefits trust fund solvent past mid-century.
For Medicare, their proposals are not to maintain benefits but to reduce them by various measures while raising the costs for the reduced benefits. These include:
1. Cap government payments while prices are allowed to rise. Or, as in the Ryan plan, give retirees vouchers to buy insurance, which is capped as well while insurance rates rise.
2. Raise the amount of monthly premiums by double or more. Currently retirees must pay between $95-$115 for doctors’ costs coverage and an additional amount per month to cover only part of prescription drugs. Combined premiums will thus rise to $250-$300 per month. And that’s not counting higher deductibles and co-pays for doctors and drugs.
The Real Causes of the Social Security-Medicare Funding Crisis
The shortfall in the Social Security retirement benefits fund and disability fund are due first and foremost to the chronic lack of job creation, and thus payroll tax revenue generation, for more than a decade now. Today fewer are employed in the US than in 2000. The 2001 recession resulted in loss of jobs followed by weak job creation for the following four years. The 2007-11 recessions resulted in 24-27 million lost jobs and continuing weak job creation for more than three years now. These cyclical job losses were combined with chronic structural job losses at the same time: multinational corporations created 3 million jobs offshore and reduced 2.4 million jobs in the US. In addition, for those with jobs, wage gains have been lagging for a decade as well. That adds up to less payroll tax revenue as well. Then on top if it all, Obama cuts the payroll tax and is about to propose even more cuts in the payroll tax.
As for Medicare’s shortfall in funding, the problem has several dimensions. First, the payroll tax of 1.45% for the employee and same for employer is ridiculously low. Where else are 47 million recipients of medical care covered for so small a cost? The typical employer provided health insurance, in contrast to 2.9%, costs 20-24% the equivalent of a typical workers monthly take-home pay. That’s almost ten times more expensive. The second major problem with the Medicare funds shortfall is rising health insurance premiums and other healthcare costs for the past 15 years. Unfortunately, there’s no solution to check rising health costs in Obama’s 2010 healthcare bill.
Some Simple Alternative Solutions to the Funding Crisis
Solving either of the funding shortfalls, for Social Security retirement-disability or for Medicare, without cutting benefits or shifting more costs to retirees is not very difficult. A recent Washington Post/ABC News poll conducted last April indicated 65% of the American people opposed Paul Ryan’s plan to cut Medicare. In fact, the poll showed 60% did not want any cuts in Medicare and Indicated they would rather pay higher taxes for Medicare to maintain medical services. Only 17% were willing to cut Social Security, compared to 45% who wanted military budget cuts. This shows overwhelming public opinion support for not cutting these programs and a willingness to pay higher taxes to maintain current benefit levels. To listen to the debates in Washington, Republican and Obama administration and Democrat alike, one would think cuts were the only solution.
But here’s some alternative solutions:
1. Eliminate the current cap of $106,800 on earnings for the 12.4%. This would raise revenue to cover 86% of the projected shortfall for the next 75 years.
2. Raise the payroll tax rate by 1% more both for employee and employer, to 14.4%, in stages over the next 20 years. According to the Social Security Trustees latest 2011 report, the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2085. So items 1 and 2 amount to 186% of needed funded.
3. I then propose to use the excess 86% funding to reduce the retirement age to 64 for everyone, instead of the current 67. Why reduce it 3 years instead of raise the retirement age three years? To open up more jobs for young workers who are suffering the worst unemployment. Today, the fastest growing segment of the work force are those over age 65, as more older workers are forced by economic conditions to continue working past 67 or are forced to re-enter the labor force just to pay their bills. With a decent, higher level of benefits they could retire earlier.
4. As for the Medicare shortfall, that can be solved simply by raising the current 2.9% Medicare payroll tax by a paltry 0.25% for workers and employers each for the next ten years, then another 0.25% each starting year eleven for the second decade. That’s a mere 1% raise over the next 20 years.
5. Better and simpler yet, make everyone pay the 14.4% and 3.4% for the next ten years, not just those earning wages and salaries. Make all forms of capital incomes (capital gains, dividends, interest, rents, etc.) pay the 14.4% and 3.4%. Do that and you not only solve the so-called entitlement funding crisis for the remainder of this century but you have now raised enough additional revenue to pay for single payer health care for all, as well as fix social security retirement and disability for the next 75 years and even increase the level of those benefits and/or reduce the retirement age.
But you won’t hear these ideas and solutions coming off the golf course summit between Obama and Boehner this week.
Jack Rasmus is the author of ‘Epic Recession: Prelude to Global Depression’, Pluto Press and Palgrave, May 2010; and the forthcoming ‘Obama’s Economy: Recovery for the Few’, Pluto and Palgrave, late 2011. His blog is jackrasmus.com and website: www.kyklosproductions.com.