Let the Means Testing Begin - Sebelius Proposes Medicare Changes

I have always felt that means testing for Medicare and Social Security was inevitable.  Liberal groups have opposed the idea because means testing changes the entitlement programs from covert wealth redistribution schemes to overt wealth redistribution schemes. Liberals believe being overt, i.e. "transparent" about the wealth transfer would undermine popular support.  To which I reply, "Great, who cares?"  The programs are going bankrupt, popular support or otherwise, making them less important to the social fabric of the middle class, especially upper middle class will allow for some sensible discussion of further reform.  A recent letter to the NYTimes captures the liberal thinking quite well.

Social Security is our most successful antipoverty program, more successful than any welfare grants. Medicare is our most successful medical care program, more successful than Medicaid. In each instance the program available without means-testing works better, without stigma and with general approval and political support. Means-testing turns applicants into potentially fraudulent beggars for charity.
. . .
Entitlements without means-testing unite us into one country. Means-testing divides us into rich and poor, each resenting the other. Our tax system is a much more effective mechanism to deal with disparities in wealth and income.

The letter was responding to an Op-Ed piece by Yuval Levin discussing how the two programs might be means tested.  While I quibble with some of the particulars, I don't see any other long term solutions.

Right on cue, the administration's budget for HHS contains the following gem:

President Barack Obama’s plan to raise Medicare premiums for upper-income seniors would create five new income brackets to squeeze more revenue for the government from the top tiers of retirees, the administration revealed Friday.. . .“Means testing” has been part of Medicare since the George W. Bush administration, but ramping it up is bound to stir controversy. 

The plan itself is complicated. The bottom line is not: more money for the government. 

Obama’s new budget calls for raising $50 billion over 10 years by increasing monthly “income-related” premiums for outpatient and prescription drug coverage. The comparable number last year was $28 billion over the decade.

Inside the details of the plan are increases in premiums and a freeze on adjusting income brackets for inflation.  It is interesting to me only that the administration is floating this idea with little fanfare.  House Budget Chair Paul Ryan is asking Kathleen Sebelius for more details of the plan.  My hope is that this gets more publicity, so the nation starts to realize that we can really only afford to pay for medicare for the poor as part of a welfare program.

Keystone Pipeline and Latest "jobs" Bill

The Democrat controlled Senate passed a two month extension of the payroll tax cut and an unemployment benefits extension. Although touted as a jobs bill, this will do little to help the economy. The payroll tax cut has so far done nothing, and will continue to do nothing except bring the day of reckoning on social security much sooner. That this doesn't produce cognitive dissonance at the AARP is beyond me and shows how deeply they are embedded with the Democratic party.






However, the Republicans managed to get a provision into the bill forcing the administration's hand on the Keystone XL pipeline. I was wondering how the left might spin this, and was surprised at the pretty realistic coverage by Joan McCarter at DailyKos:

Of course this doesn't mean that construction on the pipeline itself will be expedited, it's just intended to make Obama look bad at the beginning of an election year. When it's denied, as the State Department has already said would happen if forced to have to decide in just 60 days, Republicans can screech about his killing jobs. If he overrules the State Department, a possible but unlikely outcome, then Republicans can watch his base explode. Their favorite pastime.

Of course Joan doesn't remember the first Bush years, and all of the Reagan administration, where this was the favorite pastime of Democrats. It's a healthy part of the political system, because it forces choices on the parties and makes them say what they stand for. This is why being in power is hard, you can't equally please all parts of your coalition. In this case Obama will be forced to choose between his base of enviro-greenies and labor. I think that he will still try to finesse the deal, but it will be a test of how badly he wants to be re-elected. My guess is that because he does desire re-election, he will stiff the greens, because they have nowhere to go, and ensure labor support, because they have cash and boots on the ground.

Occupy Wall Street and Social Security

The #OWS crowd doesn't seem to have coalesced around a coherent list of demands, but given the number of young people involved in the protests, I wonder why there aren't any demands for its reform. Consider the burden the young face, when they eventually get jobs. This chart is from the federal government's Social Security Administration, so it certainly does not overstate the problem.


The chart is actually misleading because it should use a log scale to express these ratios. The drop from 3:1 to 2:1 is what leads to this situation:

The Long-Run Financial Outlook

Social Security is not sustainable over the long term at current benefit and tax rates. Beginning in 2010, the program is projected to pay more in benefits and expenses than it collects in taxes each year. By 2036 it is estimated that the trust funds will be exhausted. At that point, payroll taxes and other income will flow into the fund but will be sufficient to pay only 77% of program costs. As reported in the 2011 Trustees Report, the projected shortfall over the next 75 years is 2.22% of taxable payroll.

So a twenty-something protester who starts working can look forward to significant increases in their payroll taxes, or inflation eroding their earning power as the federal government borrows more heavily to sustain benefits. If we don't act soon the electoral possibility for reform becomes grim. From Holman W. Jenkins.

We've mentioned before Henning Bohn, an interesting University of California at Santa Barbara economist, who argues that, precisely because of these demographics, a median-age voter in successive future elections will rationally vote for higher taxes in order to secure his or her expected Social Security and Medicare benefits.

This is one of the biggest dangers to our continued future. The demographic trends, coupled with current policies are turning the entire country into welfare dependents, or at least a large enough proportion that it skews elections. This is why I am adamant that we need to raise the retirement age now, as well as to start means testing social security. Those two actions will effectively reduce the numbers of seniors who are receiving social security, making further reform more achievable.

Who is going to push Mittens into proposing a real social security reform plan?

To be fair, here is what Romney has said.

“There are one of two ways you can make Social Security work forever.

“One of course is to raise the retirement age by a year or two,” said Romney. “The other is having slower growth in inflating the benefits of higher-income of Social Security recipients. Again, not current recipients but those in their 20′s, 30′s, 40′s and early 50′s.

“Those combined, represent the best course for us to be able to permanently solve our Social Security shortfall,” said Romney.

Tea Party Debate and Social Security

What little I saw of the Republican debate didn't make me very happy, specifically, the social security issue has been in-artfully handled. Romney calling it an essential program made me ill, it was pure pandering. Perry, while essentially correct that it is a Ponzi scheme, has been remarkably unserious about how to handle the fact that the program is going broke. This issue is going to haunt the candidates in the general if they don't get their act together.

The fact is that no one is going to win the general election with either position. Saying that Social Security is hunky dory will alienate the tea partyers who know that's a lie. Implying the program will be gutted wholesale will also lose the election.

I previously posted on the constitutional issues surrounding social security reform. The purists among us may favor elimination, but that's not happening for a while. The only viable strategy is a slow reform, that reduces social security to a social safety for the elderly poor, while the rest of Americans get used to planning for their own retirement. Incremental reform is the correct and politically possible path to improvement. I even have a slogan; "Saving social security for our seniors who need it most." From previous post, here is what could be done:

• Reduce Social Security outlays as follows:
  

- Price index initial benefits (the current CPI overstates inflation, increasing pay outs unnecessarily)
- Raise the normal retirement age
- Cut Social Security disability program by 10%

• Means test social security
  

- I would explicitly use the internal revenue code on means testing to return these taxes to the social security trust fund. From a big picture accounting view, this makes no difference, but it would send the message that we are saving social security for those Americans who need it most.

Ultimately, the percent of the average American's retirement income that comes from social security needs to be reduced. Americans have to save more for retirement, which will drive a rising GDP. (There is a strong correlation between a nation's savings rate and GDP growth.)


Some other asides from the debate:

• Why is Huntsman in this debate, but not Gary Johnson? Huntsman veers from occasionally very sharp to just plain goofy with disrespect, trying to score cheap points.
• The Republicans seemed like the anti-war party, especially compared to Obama. Who'd ahve thought. Only Santorum seems ready to start another war.
  
• CNN's fact checking leaves something to be desired. They claim that the stimulus created or saved 1.5 million jobs. Bull. No matter what figure is used, it is all opinion, there is no fact, because the basic premise is unprovable.
• Debbie W-Schulz as a commenter? Really? Could we be any more disrespectful of the tea party movement than to give her free reign under the guise of impartial observer?
  

Why couldn't I enjoy the full debate? Late flight, some southern BBQ and enjoying one of these:

A fairly decent IPA, especially on draft, but in the south, they don't want to scare away the clientele, so it is billed as a pale ale.

Why I Now Oppose Social Security Privatization

I have read of some Republican Presidential candidates (Romney and Gingrich) advocating social security privatization, which George W. Bush failed to sell in his second term, thank goodness for that, even though I supported it at the time. These candidates have not thought it through. Social Security has never really been a fiscally sound proposition, hence Rick Perry's ponzi scheme comment. It depends on an ever increasing number of workers to stay solvent. Further, its benefits are not guaranteed, which rubs people the wrong way. (H/T Daily Caller) Despite the impressive sounding name, "social security retirement account," try searching for that term on the official ssa.gov website and see the result above. That's because such a thing is non-existent. Don't believe me? Here is what the government itself says about the matter on the Social Security Agency website, discussing Fleming v. Nestor.

More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.

And from the previously linked Supreme Court decision.

2. A person covered by the Social Security Act has not such a right in old-age benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment. Pp. 363 U. S. 608-611.
(a) The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are based on his contractual premium payments. Pp. 363 U. S. 608-610.
(b) To engraft upon the Social Security System a concept of "accrued property rights" would deprive it of the flexibility . . .

A key tea party principle is adherence to keeping the federal government within the limits set by the constitution, applying the plain meaning of the document. Expanding the scope of social security to include private accounts has constitutional and other problems.

• Current participation is constitutional only under the general power to tax granted Congress. A private account would not fit that definition.
• If private accounts were added, the only constitutional provision under which to compel participation is under the taxing authority. But that would give the government the authority to seize the proceeds for whatever purpose it saw fit.
• Is it a stretch of the imagination for the government, as a "shareholder" to require firms who receive investment dollars to promote social welfare and environmentally friendly policies. The scope for abuse is so great that I am surprised the left hasn't embraced this idea as their own.
• How can we argue that Obamacare is unconstitutional, while turning around and advocating participation in another social welfare scheme, just because an individual is employed?
• What will compel the government to pay up, when the bill comes due. See Fleming v. Nestor above.

What's a proper tea party view of social security, which is clearly headed towards insolvency? We should start with the concept that the nature of the program codifies an inherent contradiction; namely that its purpose is to alleviate poverty in old age, but its structure is an entitlement to all income groups. The contradiction has now landed in the accounts payable column; against an account that lacks sufficient funds. The only reasonable approach is to gradually reduce the scope of social security to its original intended purpose. (If you doubt that it was the original purpose, read Helvering v. Davis.) Social Security should not be a part of the calculation used by the middle class to determine their ability to retire; national policy needs to wean them from that notion so that they realistically invest in their own future. To this end, I propose saving social security for its intended purpose by reducing its scope, to include changing the definition of "old age" to conform with modern realities. Here a few ideas, some of them from my article on John Stossel's federal budget.

• Reduce Social Security outlays as follows:
  

- Price index initial benefits (the current CPI overstates inflation, increasing pay outs unnecessarily)
- Raise the normal retirement age
- Cut Social Security disability program by 10%

• Means test social security
  

- I would explicitly use the internal revenue code on means testing to return these taxes to the social security trust fund. From a big picture accounting view, this makes no difference, but it would send the message that we are saving social security for those Americans who need it most.

I think we should ask Republican candidates for President how they square their constitutional opposition to Obamacare with a desire to privatize social security.

Root Causes of the Ballooning Debt Crisis

Robert J. Samuelson, who I respect, but do not always agree with, reminded me of the fact that the political leaders refuse to talk openly about the real source of the debt problem. In an article partly titled "It's the Elderly, Stupid" he makes the case that source of the trouble is that over the last half century the changing social contract has made

". . .the federal government’s main task into transferring income from workers to retirees. In 1960, national defense was the government’s main job; it constituted 52 percent of federal outlays. In 2011 — even with two wars — it is 20 percent and falling. Meanwhile, Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

These transfers have become so huge that, unless checked, they will sabotage America’s future."

Unfortunately, right now, there are no votes and zero leadership to start cuts to medicare and social security right now. If we are to stop borrowing, that would have to happen. I need to ask my fellow tea partyers whether we want to explicitly state that we have a goal of cutting social security payments immediately and whether we think that works politically. Samuelson goes on to state:

What he [Obama] hasn’t done is to ask — in language that is clear and comprehensible to ordinary people — whether many healthy, reasonably well-off seniors deserve all the subsidies they receive. That would be leadership. Obama is having none of it. But the shunning is bipartisan. Tea Party advocates broadly deplore government spending without acknowledging that most of it goes for popular Social Security and Medicare.

Is the critique correct? If so, what do we want to do about it? My answer is that entitlements must be means tested, if there costs are to be brought under control. The other part of the equation is the percentage of the population that is over 65, which is set to double by 2035. This has been taken as a given, but I think that if we set out to massively increase immigration of skilled younger workers, we can overcome that issue as well. Right now, I know of no one else advocating this position.

So how about it, fellow SLOBs and fellow tea partyers? What do you want to do about social security and medicare?