By Mark Miller
Tribune Media Services
Older Americans might be thinking they dodged a bullet when the deficit cutting supercommittee process ground to a halt this week without an agreement. Many were watching the negotiations warily, worried that Social Security or Medicare benefits might be cut as part of a grand bargain on the deficit.
But even though the supercommittee has morphed into a super collapse, that doesn’t mean seniors can breathe easy. The supercommittee stalemate reflects a fundamental ideological disagreement between Republicans and Democrats about taxation and the role of federal entitlement programs. The future of entitlement programs will be a central point of debate throughout the 2012 elections. The results next November just might settle the argument and set the stage for legislative and policy action in 2013 and beyond.
Republicans have been crystal clear about their plans for Social Security and Medicare. Tune in to any of the GOP debates and you’ll hear promises to privatize both programs, and to cut benefits.
For example, Mitt Romney has proposed a “premium support” option for Medicare that would let seniors choose between traditional fee-for-service Medicare or receiving a cash contribution toward purchase of a private plan in a federally-sponsored Medicare marketplace. Romney’s proposal is a cousin of the privatization plan proposed by Rep. Paul Ryan, and endorsed by the House of Representatives earlier this year.
Call it premium support or a voucher – these proposals all have one thing in common: They would transform Medicare from a program of defined benefits to one of defined contribution. Much like the transition from defined benefit pensions to defined contribution 401(k) plans, the change would shift risk -and cost – from the government to seniors.
Newt Gingrich, Michelle Bachman and Rick Perry all want to give workers the option of choosing a private investment account as an alternative to Social Security. While this choice may sound reasonable and harmless, it would be the beginning of the end for Social Security, which relies on mandatory participation to work properly. (And, the constitutionality of the mandatory FICA tax was settled by the Supreme Court in 1937.)
Perry and Alan Simpson – who served as co-chair of President Obama’s deficit reduction commission – both have labeled Social Security a Ponzi scheme. (Social Security and a Ponzi scheme are as different as night and day. The perpetrators of Ponzi schemes lie to their investors; Social Security is an open and transparent system that issues an annual report every year prepared by trustees who project the program’s future 75 years into the future.)
Most Democrats favor preserving Social Security and Medicare in their current form, but it’s not always easy to tell where they really stand. President Obama made it clear during the debt ceiling negotiations last summer that he’d be willing to accept a higher Medicare eligibility age. He also has signaled receptivity to cuts in Social Security benefits, probably through a change in the formula used to determine cost-of-living adjustments (COLAs) or higher retirement ages.
Social Security shouldn’t even be part of the deficit debate, since it doesn’t contribute a dime to the deficit and its long-range solvency problem can be fixed easily by eliminating the cap on income subject to the payroll tax.
Medicare’s ballooning cost reflects the broader problem of exploding healthcare expenditures in our economy; higher eligibility ages or privatization would only shift costs elsewhere without getting at the root problem.
Voters have been speaking fairly clearly on this issue, as well. A recent national poll by the Pew Research Center found that 58 percent agree that keeping entitlement benefits as they are is more important than cutting the deficit.
And support for a government role in supporting the elderly isn’t limited to older Americans. Pew reports that Millennials are just as likely as GenXers, Baby Boomers and seniors to say the government does too little – not too much – to support seniors. Nearly 90 percent of those polled say the programs have been “good for the country over the years,” and that cuts across at least 80 percent of all age groups polled.
At the same time, it’s not a slam dunk that older voters will support Democrats next year. Many are angry about the Obama administration’s health care reform law (wrongly, I think), and Pew finds a general tilt toward Republicans in the possible presidential match-ups. The Tea Party has an especially interesting conflict here; most Tea Partiers want to see their entitlements maintained at the same time that they support tax cuts and shrinking the size of government.
“The most important demographic segment of the Tea Party movement is baby boomers, and they care about their Social Security and Medicare benefits,” says Fred Lynch, a professor of government at Claremont McKenna College and the author of “One Nation Under AARP: The Fight Over Medicare, Social Security, and America’s Future.”
Mark Miller is the author of “The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living” (John Wiley & Sons/Bloomberg Press, June 2010). Subscribe to Mark’s free weekly eNewsletter at http://retirementrevised.com/enews. Contact: mark@retirementrevised.com. Twitter: @retirerevised
This was printed in the February 26, 2012 – March 10, 2012 Edition
