The three biggest drivers of our current and future federal spending deficits are Medicare, Medicaid, and Social Security. All three programs are increasing faster than their revenues, and are not sustainable in their current form. Presidential candidate Chris Christy just announced his idea to help sustain our Social Security program. I think he has a good idea. As a libertarian, I could easily argue that it is not a proper role of government to force people to pay into a system such as Social Security. But it is true that Social Security has kept, and continues to keep, many senior citizens our of poverty. He proposes to phase out payment of benefits for seniors starting with those who have incomes greater than $80,000 per year, and completely ending payments to those with annual incomes greater than $200,000. Additionally, he proposes for increase the normal retirement benefit from age 67 to age 69 for young people who are far away from retirement. Those young people are expected to be healthier and live longer that previous generations. They will still get retirement benefits for 15 to 25 years or more. If they are unable to work, they will have disability benefits. This proposal is better than increasing taxes. This will change the system to one based on need, rather than one based on what a person has paid in. Who has a better suggestion?
Recently, more people have called for an end to the cap on wages that are subject to the social security tax. (For 2015, only the first $118,500 of wages are taxable, no social security tax is paid on wages above that amount.) I think that would be the wrong way to go. Social Security was sold to the public as a retirement plan where the amount of benefit received had some relationship to the amount paid in. It was not sold as a welfare program where the rich subsidize the poor. The benefits paid under Social Security are limited. That is why taxable wages are limited. Social Security is was intended to cover only a portion of a person’s needs during later years. People should expect to continue to work throughout their lifetimes unless they save enough for their own retirement. Unless, of course, we want to change over to a welfare system, where benefits are determined by politics rather than the amount you pay in.
If we do nothing to fix our Social Security scheme, our trust fund will be depleted by 2033, and then benefits will be required to be reduced by 23%! There are only two ways to fix this problem: raise taxes or reduce benefits. Taxes can be raised on all workers, on only certain workers, or on non-workers. Benefits can be reduced by lowering monthly payment amounts or by raising the retirement age. Of course, any combination of the above is possible.
Recently, more and more people have been calling for the elimination of the cap on Social Security taxable earnings. (For 2014, earnings over $117,000 are not taxed for Social Security. The cap is increased every year.) The original idea for the cap was that Social Security is an insurance-type plan and taxes paid in should bear some relationship to benefits paid out. The tax is limited because the benefits are limited. Social Security was never intended to be, or sold to the public as, a welfare plan. (We have a broad welfare safety net for those who are poor.)
Like so many government programs, Social Security provided benefits greater than the amount of tax collected. Current and past retirees got their benefits and shifted much of the cost to future generations. This needs to stop. Wherever possible, those who receive benefits should pay the cost. It would be morally wrong to place extra taxes on high earners just because we can. That would be an example of tyranny by the majority.
To the extent that we do not want to reduce benefits, it seems most fair to raise taxes on all earners. But maybe the best solution would be to continue to raise the normal retirement age. Today we live much longer and healthier lives than when Social Security was created. Should a required government retirement insurance plan be designed to pay for 20 or 30 or more years of retirement? For those unable to work, we do have Social Security Disability benefits. For those who are healthy, it seems better to delay retirement and not reduce the benefit amount.
Disclosure: I am currently semi-retired and my earnings are below the cap. So, increasing or eliminating the cap would not increase my SS taxes. An overall increase in the SS tax rate would increase my SS taxes. Most proposals to increase the normal retirement age would not affect me since I am 61 years old.
Republicans are right to not increase the debt ceiling without some action to reduce our Country’s spending deficit. They are not right to pick out Obamacare as the only possible target. President Obama and the Democrats are wrong to insist that the Republican in the House of Representatives pass a “clean” debt limit expansion bill. The compromise should be to agree on spending cuts that are not specifically related to Obamacare. The four big drivers of the Federal budget deficit are Medicare, Medicaid, Social Security and Military spending. Any other spending cuts, although helpful, do not really solve our long-term problem. Republicans should propose some type of binding agreement on entitlement and military spending cuts in return for passing a debt increase bill. The real problem to be solved is that we must stop spending beyond our means.
Maybe it would be best to let the Sequestration spending cuts to take effect. It appears that elected politicians are unable to make significant cuts to any specific federal spending items.If cuts could be prioritized, here would be my short list in order of priority:
- The Medicare eligibility age should be coupled with Social Security and they both should be gradually moved to age 70. The federal government should not be responsible to pay for 15 – 30 years of retirement for healthy adults. (see below)
- Freeze the dollar amount of federal spending on Medicaid – block grant the money to the states and let States decide on the priorities. There will always be more demand than there is supply for free medical care.
- Cut military spending, in actual dollars, by at least 5%. Let the defense department decide on priorities to give us the best defense that the budget can buy. We would still have greatest defense on Earth.
- Eliminate the Dept. of Education – leave education to the states entirely.
- Limit farm subsidies to $50,000 per farmer maximum, $100,000 per family maximum. Phase out all subsidies for farmers who have a Adjusted Gross Income between $100,000 and $200,000. Require 100% of the cost of crop insurance to be charged to the farmers. Why do we keep paying subsidies to farmers when they have record profits? Something is wrong.
- Cut the FEMA budget by 50%, and make States pay a 50% co-insurance payment for all federal money that flows into any State. States would be much more efficient, and there would be much less abuse and fraud.
- Eliminate subsidies and special tax breaks for all forms of energy. All energy producers fight to protect their subsidies by claiming that the other forms of energy get subsidies and all they want is a fair playing field. Well, lets make the playing field very fair – no subsidies for anyone.
- Eliminate spending on arts, and humanities, public broadcasting, etc. Contributions to these kinds of organizations should be left to charitable organizations.
I’m sure the list would be different and much larger if I took enough additional time.
According to data compiled by the Social Security Administration:
- A man reaching age 65 today can expect to live, on average, until age 83.
- A woman turning age 65 today can expect to live, on average, until age 85.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
Some people argue that there should be no cap on Social Security taxable wages and that the tax should be paid on all wages. The reason for the cap is that social security is not a welfare program. Benefits received are based on taxes paid in. Medicare has already been converted into a welfare program. The Medicare tax is applied to all wages, but those who pay more don’t get any greater benefits. Medicare taxes 2.9% of all wages. Social Security taxes 12.4% of wages up to $110,100. If the Social Security tax were to be applied to all wages, it would probably be the greatest tax increase of all time. Most people want a fair payment for what they have paid in. They understand that a higher retirement age is fair. That is what should be done.
Several years ago, as part of the stimulus package, Congress and the President agreed to cut student loan interest in half – temporarily. Like so many other temporary cuts, there is tremendous pressure to continue them. Take the Bush Tax cuts and the Social Security tax cut. Congress need to buck up and let all of these tax cut expire – on everyone. We have a tremendous budget deficit and debt. We are absolutely cheating our children and grandchildren. We must actually reduce our deficits – through a combination of significant spending cuts and letting the various tax cuts expire and by closing special interest loopholes in the tax code.