D. Dowd Muska

 

This Week's Column

   

 

The Grand Old Entitlement Party

October 23, 2014

Rush Limbaugh is “not sure what the Republican Party stands for right now.”

The radio entertainer’s confusion is not shared by anyone paying close attention to this year’s congressional smackdowns. The GOP, it is clear, has an unwavering commitment to entitlements.

In Iowa, Senate hopeful Joni Ernst is not interested in letting people escape Social Security -- she wants to force more employees to join. During a debate with her Democratic opponent, Ernst floated the option of “bringing in new state and local workers that are not currently engaged in the Social Security system.”

In Nevada, Karl Rove’s Crossroads GPS is assailing Rep. Steven Horsford for backing Obamacare, and thus “billions in Medicare cuts.” (It’s a charge that Mitt Romney often made against the president in 2012.)

The message is the same, everywhere. No changes for current beneficiaries. And no sacrifices for those soon to retire, although specifics on the standard are rarely offered. (When is a worker close to retirement -- five years? Ten?) Occasionally a candidate will propose vouchers and/or privatization plans for the youngest members of the workforce. But in the near term, GOPers leave no doubt that the existing architecture won’t be altered.

It’s bizarre for “fiscal conservatives,” “budget hawks,” and “tea partiers” to argue for the status quo, given the severity of the nation’s entitlement crisis. We’ll get to the financial peril, but first, a reminder of what Washington’s senior-citizen safety nets actually are. Despite the claims of the greedy-geezer lobby, Social Security and Medicare are not “social insurance.” Economists Thomas R. Saving and Andrew J. Rettenmaier politely averred that the “two programs should more appropriately be considered social transfers, not social insurance, because workers’ tax payments are transferred to retirees not on the basis of risk, but rather on the basis of age.”

Robert J. Samuelson uses a better word: welfare. For years, the columnist has inspired hate mail by insisting that “Social Security and Medicare benefits are paid with current taxes. The same is true of … food stamps, farm subsidies or unemployment benefits. Workers have not been ‘saving’ to pay their own Social Security and Medicare costs.”

Expanded goodies, more “eligibles,” lengthier lives, lower labor-force participation, a declining birthrate. The five factors are conspiring to make the entitlement state wildly unsustainable. Officially, Social Security’s “trust fund” expires in 2033. But this summer, economist Laurence J. Kotlikoff lectured Congress that the New Deal behemoth is “not bankrupt in 30 years, or 20 years, or 10 years. It’s bankrupt today. This is not my opinion. This is only conclusion one can draw from Table IVB6 of the 2013 Social Security Trustee’s Report. This table reports that Social Security has a $23 trillion fiscal gap measured over the infinite horizon.”

Medicare’s in worse shape. The “solvency” of its hospital component is set to vanish in 2030, and as a trustee described, the program’s “costs are rising faster than Social Security’s and will put greater pressure on the overall federal budget in the years ahead. Total Medicare costs are 3.4 percent of GDP today but are projected to rise rapidly to 5.4 percent of GDP by 2035, and 6.9 percent by 2088.”

In fiscal 2014, it’s estimated that Social Security and Medicare will gobble up 37.7 percent of federal expenditures -- just under $1.4 trillion in all. (For scale, transportation spending is $95.5 billion and net interest payments cost $223.5 billion.) Again, demographics dictate that the price tag will continue to soar. Thousands of Baby Boomers turn 65 every day, and they will live longer, and sicker, than previous generations. At the other end of the tightening entitlement trap, the Bush-Obama economic apocalypse fostered unemployment, underemployment, and stagnant wages, producing subpar payroll-tax revenue.

To avoid ruinous tax hikes on individuals and businesses, it is essential to apply means tests, require higher premiums, raise eligibility ages, and impose honest-to-gosh benefit cuts -- now, not sometime in the future, when Millennials sprout gray hairs. It’s not as if a significant number of seniors can’t afford austerity. A 2011 study found that in “2009, households headed by adults ages 65 and older possessed 42 percent more median net worth than households headed by their same-aged counterparts had in 1984.” (At the same time, “the wealth of households headed by younger adults moved in the opposite direction.”)

What explains the GOP’s cowardice on Social Security and Medicare? Here’s the likeliest answer: The elderly are increasingly abandoning Democrats. Refusing to face the truth about entitlements is horrific policy, but for Republicans, it’s great politics.

For now.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska. He lives in Broad Brook, Connecticut.

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