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Stephen Herrington

Stephen Herrington

Posted: February 11, 2010 02:46 PM

Paul Ryan's Killing of Social Security and Medicare Will Never Fix the Deficit

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Paul Ryan (R-WI) proposes, in the quasi official GOP budget plan, to sunset Social Security and Medicare because they cost too much. Oh, and to cut taxes with the proviso that the CBO not score that as a loss in revenue. Brilliant. It is quasi official because it endorses policy that the Republicans align like baby goslings to their mama goose, but that they have learned better of than to reveal in public. The GOP has hated Social Security and Medicare from day one, they just know they can never be elected on a platform of destroying these very effective and popular programs. There is a lesson for Democrats in that.

"The promise of secure retirements is a 'hoax.' Taxes paid by workers are 'wasted' by the government rather than invested prudently. And 'the so-called reserve fund ... is no reserve at all' [because it contains nothing but government IOUs], said Republican presidential candidate Alf Landon in 1936."
-Steven Thomma, Knight Ridder Newspapers, reprinted; Seattle Times, Sunday, February 06, 2005

The GOP has been so enraptured by and has fantasized and even romanticized for so long abo the idea of destroying Social Security and Medicare that they have apparently switched off the part of their lizard brains that can calculate the outcome of doing so. No, I'm not talking about the outcome of starving seniors in emergency rooms that would follow. I'm talking about the fact that, in terms of budget deficits, it would accomplish nothing for the public to destroy these programs and, in that destroying, raise cost of living burdens for the public.

It would not, and could not, fix the budget deficit to shut down either of Medicare or Social Security. Why? Aren't these two programs the focus of future budgetary nightmares? Yes, they are, but shortfalls in their finance going forward are an issue entirely separate from the prospect of cutting the programs altogether.

To begin with, the Baby Boomers have paid for their Social Security benefits, courtesy of Reagan and Greenspan raising the payroll deductions to SSA and raising the age at which benefits start. They did this nearly thirty years ago, and Boomers have shouldered those payments for a working lifetime.

At this juncture, Social Security shortfalls may indeed loom as increasing the deficit. It in no way needs to have become such. The Reagan administration, and intervening administrations since, with the exception of Clinton, used the excess revenue stream from Social Security Trust Bonds, that money which was not paid out in current benefits, the "Surplus", to fund the operation of government. Reagan tax cuts for the rich were financed, in part, by the use of the Social Security Trust. Reagan, as a pure ideologue, might have actually believed that tax cuts could grow the economy to balance the budget and repay the SS Trust. But it is apparent that the Bush-era Republicans never had any intention of honoring the debt and contrived to disguise that they had always planned to default on that debt. Privatization was a red herring to focus attention away from the coming default and insolvency, robbery, of the Social Security Trust. There can be no other reason to propose such rank stupidity.

Clinton attempted to rectify the obvious robbery by balancing the budget and producing a small and growing surplus that would have allowed the Social Security Trust to be repaid. Bush 43 reversed the benefit of that effort and renewed the raiding of the Social Security fund for the benefit of the rich with renewed tax cuts.

Both of Social Security Trust Bonds and Treasury Bonds are solemn obligations of the government and must be honored. They are part of the National Debt, and, by statute, the Social Security Bonds have priority over the servicing of any other debt. If insolvent, the government will be obligated to borrow money to pay back the boomers for their loan of trillions to the government. If it does not, it will be the highly politically visible signal default of this nation on the most foresworn of defaults, that of abusing the power to tax to defraud the entire population for thirty or more years.

Medicare looms larger than Social Security as a deficit bomb because of burgeoning increases in cost of care, doubling in the last ten years with no plateau in sight. Social Security, according to the SS administration itself, could be made solvent by either of balancing the federal budget or eliminating the limit on compensation that is subject to SSA. Medicare is not so easy. Health care costs were not anticipated to rise as were Social Security costs. No steps at all were taken to address them in the recent past. Either of Medicare payroll tax increases in some form or cost controls of some form could have averted the Medicare crisis. It is upon us.

But to give up on these programs, to eliminate them, as Paul Ryan (R-WI) now suggests on behalf of his party, is simply a folly of the most imbecilic kind. Imagine, if Social Security and Medicare were curtailed, would the revenue for them stop being collected or be garnished into the general fund to reduce the deficit/debt?

Unfortunately for Republicans, their life long goal of eliminating Social Security and Medicare by impoverishing the government through debt will not work. It will be obvious to everyone that cutting benefits of either program and retaining the tax revenue stream to serve debt reduction will amount to a regressive tax increase. If you don't retain the tax revenue stream, then cutting these program will be absolutely, best case, deficit/debt neutral.

To the employer who ponies up half of the FICA, Social security and Medicare, payroll tax, it might be tempting to think that you would get to keep that money if Social Security and Medicare did not exist. The social truth is that if there were no Social Security and Medicare, employers and employees would be embroiled in an epic battle over the wage increases needed to replace that contribution. It has become a structural part of compensation, a far distant condition from when the bitching first began. It was an increase in cost when first passed. Now it is an inseperable cost. Not only would the battle be over the futures of the employee and employer, but over the certainty that the employee's parents would need to be supported by the employee in amounts enough to replace the absence of Social Security and Medicare. In other words, the functions of Social Security and Medicare cannot be made to go away, to anybody's benefit.

All this is predicated on the notion that Social Security and Medicare are a value for the money. The facts are plain. Social Security, by virtue of being the largest deferred income risk pool possible, can return 3 times as much to the participant as can any savings discipline. Social Security is the most secure guarantee of future income by far, its only real vulnerability being the rancor of Republicans. Medicare, by means of cost controls and the distribution of risk, is the best deal going in health care by a third. To scrap Medicare would mean loss of that price leverage and higher prices for seniors that will likely end up being passed on to the sandwich generation.

Vouchers for private insurance in lieu of Medicare are insane. If issued as a value for value replacement for Medicare they would instantly increase the federal deficit component for assistance to seniors by 30%, the cost advantage of Medicare over private plans. Anything less than full value would simply disproportionally shift the burden from government to a public already groaning under the weight of servicing medical profits. There are no net savings to the public here. Servicing private profit is no less onerous than taxes.

Medicare is the most difficult issue in that health care costs have outstripped inflation by 2-5 times. In order to anticipate Medicare solvency for the current workforce, Medicare payroll taxes could have to quadruple to anticipate the trending of medical costs. It is not the program that is at fault for this, it is the health care system. A witches brew of greed and technology may yet make it impossible to live as long as one can live by the growing price tag of that longevity exceeding anyone's reach. Our health care system has accomplished that for 44,000 people per year already. Health care reform and cost containment is the single most crucial thing that can be done to wrangle the deficit.

It is time, perhaps in light of the Republican budget agenda, to end the distinction between public and private liabilities. The net cost to the public for living is the net cost of consumption by the private citizen minus any benefit supplied by his/her government. If government can reduce the costs of living for the private citizen by efficiencies of scale and bargaining power, then it is incumbent on the government to do so. It is incumbent on government to do this so long as the price setting advantage in the private market for labor remains in the hands of an indifferent and greedy autocracy of the rich. Or, Das Kapital looms.