Monday, October 14, 2013

Stabilize Social Security and Medicare Programs!

Here's something Democrats should agree upon: Protect the Entitlement Programs.

Medicare and Social Security are good programs from which I hope to benefit.  But, when they were started in the late 1930s life expectancy was some 20 years lower at 67 years, benefits were understood to be a small supplement to personal savings, and there were some 160 workers for each beneficiary.   Now there is about 3 workers per beneficiary and dropping slowly.

Spending on all of these programs, especially Medicare/Medicaid, has outstripped payroll tax collection in recent years.  In fact, spending on all of these entitlements threatens to consume the entire Federal budget in several decades. And as government spending rises, so do medical costs/prices.  It's already pressuring discretionary spending like defense and domestic programs.  See the chart below from (click to enlarge)

Red Line is Gov't Revenue as % of GDP,  Blue Lines are Entitlement Spending as % of GDP

Spending on Medicare, Medicaid and Social Security totals $1,570 billion (Social Security at $768 billion, Medicare/Medicaid at $802 billion for FY 2012) while tax receipts are only $925 billion (also FY2012).    You can see that there is a $645 billion gap or deficit comparing spending to tax receipts.  That amounts to a 70% shortfall based on tax collections.

Since these programs were meant to be paid for by payroll taxes, I propose that we "protect" these programs by a proposal to raise the FICA witholding by 70% to put the program in balance.  I would also propose to continue raising taxes each year to keep the programs in balance.  It's that or trim benefits.

If we did this, it would do several things.
  1. It would start an important debate about how much to raise the payroll tax vs. how much to trim benefits.
  2. It would communicate to the ordinary taxpayer, who doesn't pay close attention to Federal budget issues, that the 'books' are way out of balance in these important programs. 
  3. It would communicate that entitlement spending, as is, is threatening to consume the entire Federal Budget.
  4. It would alert younger workers and taxpayers to their outsized responsibility in taking care of the aging people in this country.
To balance these program's budgets, the current 7.6% payroll tax (FICA) would have to rise 70% or to 12.9% to match taxes to spending---and/or cut benefits. (It would raise the 7.6% tax on businesses to 12.9% also.)

Wouldn't that be an eye opener??   It should start a conversation on whether to trim benefits or accept the burden placed on younger workers.  Furthermore, balancing the entitlement deficits would balance the entire federal budget.  That's right, $645 billion is the projected budget deficit for this fiscal year.

Of course,  anyone who proposed such a thing would be labeled as hostage takers, anarchists, insane, arsonists and extortionists by the Democrats who want to keep their own heads in the sand.  It would be declared "dead on arrival" by Reid in the Senate, and so on.  They can't admit anything is wrong with their pet programs.

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