Social Security’s retirement and disability programs will become insolvent in 16 years. Medicare’s hospital insurance program in seven.
This year, these programs will spend $93 billion more than they take in through payroll taxes — an annual deficit that is rising fast. By 2035, the red ink will top $628 billion. And, given the history of these long-term projections, that’s likely a vast understatement.
So, what’s the Democrats’ response to the crises facing these two gigantic retirement programs? Massively expand both!
Rep. John Larson, D-Conn., introduced the Social Security 2100 Act, which among other things would provide an across-the-board boost in benefits for current and future retirees, as well as a higher annual cost of living adjustment, and a more generous minimum benefit. It has 203 co-sponsors.
“The Social Security 2100 Act will provide economic security not just for today’s seniors but for future generations too,” Larson says.
Larson claims that expanding benefits, even in the face of Social Security’s imminent demise, is a snap. But while Larsen claims much of that bill will be paid for by “the top 0.4% of wage earners” by imposing the payroll tax on incomes above $400,000, he’d also hike the payroll tax rate paid by workers and employers by 19%.
An analysis by the Social Security program’s own actuaries says Larsen’s bill would boost payroll taxes by $1.1 trillion over the next decade, and another $2.4 trillion in the decade after that.
American Enterprise Institute scholar Andrew Biggs told Congress earlier this year that a tax hike of this magnitude would have profound negative effects on the economy, cutting the labor supply, reducing private savings, and increasing household debt.
He also said that the tax hikes would almost certainly raise less money than expected because it would suppress wages and slow the economy. Which means that Larsen’s plan would likely worsen Social Security’s financial outlook.
Then there’s Medicare. The new report says that Medicare’s hospital insurance trust fund — which is also financed out of payroll taxes — will become insolvent in 2026. That means, as with Social Security, either taxes will have to be hiked or benefits cut to keep the hospital insurance part of Medicare functioning.
But this, too, is hugely optimistic. The trustees are assuming that the substantial payment cuts to providers — put in place by Obamacare — get implemented as scheduled. Medicare’s actuaries have been warning for years that these cuts, if they take place, will drive doctors out of practice and hospitals out of business.
The Democrats’ response to Medicare’s even shakier finances: Vastly expand it to cover everything (with zero co-pays or deductibles) and have it cover everyone in the country, including illegal immigrants. Their “Medicare for All” plan would be unlike anything ever attempted on the planet. Even quasi-socialist countries rely on private insurance and out of pocket spending to some extent.
And its eye-popping 10-year $32 trillion price tag is an unrealistically conservative estimate, since it’s based on unlikely savings and low-ball cost estimates.
As we’ve noted:
Every new government health program — including the original Medicare program — cost far more than expected. The average per-enrollee Obamacare subsidies are 11 percent higher than what the Congressional Budget Office initially thought. And newly eligible Medicaid enrollees cost 49 percent more than expected.
To say that the Democrats’ plans for Social Security and Medicare are unwise is the understatement of the year. After all, where else would it be considered reasonable to take an operation that is hurtling toward insolvency and vastly expand it?
Social Security and Medicare don’t need to be expanded. They need to be reformed in ways that reduce dependency on government, increase the role of the private sector in providing retirement benefits, and that don’t threaten to bankrupt the nation or make false promises to future retirees.
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