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Could the Elderly Get Pushed Off the Fiscal Cliff?

December 20, 2012
Personal Finance
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The election is behind us, and the fiscal cliff is up ahead, so it’s no surprise that competing ideas about how to allocate our resources and live within our means are flying fast and thick in Washington. It’s clear some tough decisions and compromise will be necessary – essentially, we need to figure out which elements of society should bear the pain of budget cuts. Unfortunately, one new source of these ideas—a think tank called Third Waymixes their reasoned, centrist proposals with positions on Medicare and Social Security that are anything but kind to seniors.

Washington, DC-based Third Way advocates very persuasively for fresh thinking, compromise, and what they call “a low corporate tax rate and a streamlined regulatory regime that helps businesses grow.” Two position papers from 2011, The Bargain and Saving Social Security, co-authored by Jim Kessler, one of the founders of Third Way, present the group’s self-styled “modern ideas” for improving the American economy quite cogently. Although other Third Way essays espouse liberal positions on issues such as same-sex marriage and gun safety, these particular documents are perhaps of greatest interest to seniors.

A recurring theme in The Bargain is the flabbiness of the country and the advanced, unproductive age of certain of its inhabitants. A couple of samples:

We are not a demographically young country full of vigor; we are a middle-aged country with love handles . . . with the bulk of new spending providing support to a deserving but less economically productive elderly population as opposed to funding investments in the future.

I think the key to understanding this surprising claim about “the bulk of new spending” is the word “new.” Such outlays presumably do not include military cost overruns or bank bailouts. But Americans demand one non-negotiable imperative: “sustained, robust growth.” And oldsters don’t provide it:

Nearly all of America’s growth is created by people who are in their prime working years . . . Younger people create future economic growth while older people consume government services and generally create little economic growth.

Of course, these older people did contribute to the country’s growth, and they paid payroll taxes to prove it. But that’s in the past. Here’s what we should do right now:

Pare spending on Medicare, Medicaid, Social Security, as well as federal pensions.

This can be achieved for Social Security recipients by raising the retirement age even higher than presently contemplated, using less-generous “chained” cost-of-living estimates, and kicking high-income individuals out of the program entirely. Some actual income could be created by taxing the Social Security benefits of wealthy seniors and raising their payroll taxes if they’re still working, and “placing a 2% FICA-fine [to benefit Social Security and Medicare] on undocumented workers as they earn a path to legality.” As well as a 10% FICA surcharge on employers who hire workers on temporary immigrant visas. Like seniors who accept a later retirement age, they’ll be “doing their part to reduce Social Security’s shortfall.”

Fortunately, not everyone in Washington believes that a commitment to unproductive seniors is hamstringing the country. Representative Jan Schakowsky (D-Ill) has a detailed Deficit Reduction Plan that includes this refreshing take on Social Security:

Social Security has nothing to do with the deficit. It has a surplus of $2.5 trillion which will go up to $4 trillion, and without any changes the program can pay out full benefits until 2037. To extend full benefits for the next 75 years, the Schakowsky plan achieves long-term solvency without making any benefit cuts. The plan would eliminate the wage cap on the employer side and raise it to cover 90% of aggregate wages on the employer side, apply FICA to all wage income below the cap, and establish a small legacy tax on wages above the cap. These recommendations would result in surplus funding that can be used to improve the extremely modest benefits that are now provided.

Of course, Social Security is only one “entitlement,” but it’s one of the largest. Until healthcare fraud and inefficiencies are brought under control, the cost of Medicare and Medicaid will be also a serious concern. What I take away from Schakowsky’s work is the conviction that if our calculations are infused with a genuine concern for the welfare of our citizens, we can arrive at solutions that don’t ask the neediest among us to compromise on their health and welfare.