In a recent interview with former President Donald Trump, CNBC’s Joe Kernen called entitlement reform “a third rail of politics” and suggested “there’s not a whole lot of difference” between Trump and President Joe Biden on the issue. The contretemps that followed confirmed the accuracy of both observations, illustrating yet again the bipartisan refusal to seriously address, or even acknowledge, the looming Social Security and Medicare crises.
“There is a lot you can do in terms of entitlements, in terms of cutting and in terms of also the theft and the bad management of entitlements,” Trump said. The Biden campaign seized upon the comment as evidence that Trump wants to “slash Social Security and Medicare,” and Trump denied any such plan, saying, “I will never do anything that will jeopardize or hurt Social Security or Medicare.”
Biden likewise promised to “protect” both programs. “If anyone here tries to cut Social Security or Medicare or raise the retirement age,” he vowed during his State of the Union address this month, “I will stop you.”
Biden averred that “many of my friends on the other side of the aisle want to put Social Security on the chopping block.” But the truth is that Republican House leaders, at Trump’s urging, are disinclined to back serious entitlement reforms, fearing the political electrocution to which Kernen alluded.
Contrary to what Trump and Biden imply, it is impossible to “protect” Social Security and Medicare by doing nothing. Inaction will guarantee automatic benefit cuts in less than a decade.
In 2033, according to the latest projections, Social Security’s trust fund “will become depleted,” and “continuing program income will be sufficient to pay 77 percent of scheduled benefits.” Two years before then, Medicare’s hospital insurance trust fund “will be sufficient to pay 89 percent of total scheduled benefits.” (Peter G. Peterson Foundation)
The programs’ trustees note that “lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls.” But Trump and Biden have ruled out nearly all of them.
Biden did allude to one possible Social Security reform in his State of the Union address, saying he would “protect and strengthen Social Security and make the wealthy pay their fair share.” But as my Reason colleague Eric Boehm notes, raising the cap on income subject to the Social Security payroll tax, currently $168,600, would violate Biden’s promise “not to raise taxes on anyone earning less than $400,000 annually” and would not “come close to solving the long-term Social Security shortfall.”
Tackling “fraud and waste,” the solution that Trump seemed to have in mind, would be worthwhile but likewise will not do the trick. In 2023, for example, House Republicans cited an estimate of “$16 billion in improper payments” by Social Security “over the last five years,” which is real money but a drop in the bucket compared to the program’s projected $4.5 trillion cash deficit during the next decade.
The basic problem with both programs is a mismatch between projected revenue and projected costs, driven by the shrinking ratio of workers to retirees. The only way to eliminate that gap is by increasing revenue, reducing outlays, or (more likely) both.
Those reforms could involve raising the retirement age, increasing payroll taxes on high-income Americans, or means-testing benefits, focusing on retirees who need financial support to cover their bills. As it stands, Social Security regressively transfers money from workers to retirees who are, on average, more affluent. That makes little sense if the aim is to prevent poverty among older Americans, which is how the program originally was framed.
It is no mystery why politicians are reluctant to propose such reforms. Last week, when the Republican Study Committee suggested gradually raising the minimum age for full Social Security benefits from 67 to 69, the White House immediately condemned that modest proposal.
The fear inspired by such attacks encourages politicians to continue kicking the can down the road. But the longer they wait, the more painful the inevitable reckoning will be.
Copyright 2024 by Creators Syndicate Inc.