A Little News On Entitlements

Charles Blahous, a former public trustee for Social Security and Medicare, has a WSJ update on the financial position of these entitlements.  The title is The Social Security Trust Fund Goes Bust.  He says:

The downward spirals have accelerated. The combined Social Security trust funds—one for disability, one for retirement—as well as Medicare’s hospital-insurance trust fund, will begin eating into their reserves this year, according to reports released this week by the programs’ trustees.

It seems to us like an attempt to use the most recent data to galvanize the people to spur the Congress and the President into action.  It really should not be necessary and if the data was slightly more favorable it should not change the situation.  Charles gives us the important message near the end:

The annual press focus on the projected insolvency dates has always been somewhat misplaced. What’s really important is the magnitude of the shortfalls and the difficulty of correcting them, which grows every year.

We agree.  What is amazing is when you Google “Social Security Trustee Report 2018” is how little news it generated.  It mostly shows up on opinion sites.  The one in a news publication, US News And World Report is by Mark Miller and entitled, Repeat After Me: Social Security And Medicare Are Not Insolvent.  And why is an insolvent program not insolvent?

In other words, retirees – and future retirees – would lose nearly a quarter of their benefits. But that is not insolvency, and solutions are readily available to avoid that unacceptable outcome.

Here is an experiment.  Try paying 77% of your bills.  Are you insolvent?  Affirmative.  The outcome of insolvency depends on your creditors.  And if you have no chance, as with entitlements, of ever paying more than 77% then you are absolutely insolvent.  The only question is whether it will be solved before or after bankruptcy court.  Then Mark gives us a summary of the options:

Conservatives favor benefit cuts via higher retirement ages, more means-testing and a less generous annual cost-of-living adjustment. Progressives advocate gradually increasing payroll taxes and lifting the cap on taxable benefits. Considering that middle-class households depend mainly on Social Security for support in retirement, it would be wiser to follow the progressive agenda.

The first and second sentences need a close reading to reveal the bias.  We might convert Mark’s first two sentences into:

Conservatives favor solutions like means testing, more accurate cost-of-living adjustments, higher payments to lower classes, and higher retirement ages.  Progressive advocate higher taxes through increasing tax rates and the amounts subject to Social Security taxation.  Many conservatives and progressives seem to support ignoring the problem.

The last sentence in our quote of Mark is very curious.  Does it mean that the lower class doesn’t depend on Social Security (SS) for retirement?  We would like to see that data.  Our priors are that lower classes rely most heavily on SS of any class.  We, along with many conservatives, would support an increase in SS payments to them.  Middle class depends  on SS between the upper and lower, and the upper class depends the least on SS.  As we see it, the wiser course is the conservative agenda of means testing because it will reduce the payments to the upper class that is less likely to need it.

Fixing Social Security today is relatively easy because there are many politically viable solutions.  None of these solutions have happened because of the political opportunity in opposing any changes.  Fixing Medicare is going to be much harder because of the difficulty in creating a market for medical services.  We know we are not going to start today but let’s start soon for the kids and grandkids because, as Charles says, it gets harder to fix every day.  Start with SS.

 

 

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