Jan. 18--Should America put Social Security and Medicare on the chopping block? Can the nation afford to support old folks at current benefits as so many baby boomers retire?
That question will get a lot of attention in the next month as Republicans and Democrats clash over the debt ceiling and demands for big spending cuts.
Republicans are calling for cuts in "entitlements." Social Security and Medicare are the biggest entitlements, along with the Medicaid program for the poor and nursing home patients.
Health economist Tim McBride spent a career studying those programs. He wrote his Ph.D. dissertation on the 1983 reforms that preserved Social Security by raising payroll taxes and the retirement age. He's now a professor at the Brown School of Social Work at Washington University.
McBride took a roundabout route to academia. He began as a sports writer for the Milwaukee Journal, following in his father's footsteps.
He abandoned fun and games to get a doctorate in economics from the University of Wisconsin in 1987 and took a job with the Urban Institute in Washington researching income issues. He moved to academia, and by 2003 was a professor of health policy and management at St. Louis University. He moved to Washington University in 2008.
At this point, Medicare payroll taxes bring in far less than Medicare spends. Social Security payroll taxes don't quite cover the cost of Social Security checks. As more boomers retire, the government will have to come up with more and more cash to pay the difference. That's why conservatives are demanding spending cuts in entitlements.
McBride thinks Social Security can be fixed with minor tweaks -- perhaps less generous inflation increases, or lifting the $113,700 limit on wages subject to the payroll tax.
Medicare is a bigger problem, and McBride advocates a spread-the-pain approach -- lower benefits for old people, higher taxes for others and tighter curbs on doctors and hospitals.
The reforms of the 1980s were supposed to fix Social Security. Now we're told it's not fixed. Why didn't that fix work?
It did what it was supposed to. We haven't had to do anything to Social Security between then and now.
In 1983, they had a really severe short-term problem. Literally, they couldn't have paid the benefits in six months. They frankly dealt more with the short-term problem.
They did fix the long-term problem, on paper. (Under the reforms, surplus Social Security taxes were deposited in a trust fund for future generations. In practice, the government borrowed the money to fund other operations and filled the fund with special Treasury bonds. Now that payroll taxes no longer cover all benefits, the Treasury has to turn those bonds into cash.)
We basically spent the Social Security trust funds. I have a picture of President George W. Bush when he visited the trust fund in West Virginia. It's a filing cabinet with a lock on it. The fund consists of pieces of paper -- IOUs.
Right now the woman in that picture is mailing these certificates to the Treasury Department and saying send us money, and that's how Social Security recipients are being paid.
Still, I believe Social Security will last. It's the full faith of the government being honored.
Our biggest problem now is that our economy is sluggish. The best way to fix Social Security and Medicare is to get the economy going. By far, the best thing to do is raise (gross domestic product) growth 1 percent. Raise wages. That fixes Social Security and Medicare faster than anything.
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