Monday, September 8, 2008

Social Security, Medicare and the Candidates


The current structure of Social Security and Medicare will cause the federal government's debt to skyrocket over the next several decades. Both candidates understand this. Senator Obama has made some proposals that would help ease the problem, but has been very critical of others that will make a bi-partisan solution more difficult. Conversely, Senator McCain has offered little in the way of proposals, but has left "everything on the table" for negotiations if elected.


One key issue facing the US long term is the horrible fiscal imbalance in the Medicare and Social Security systems. If this sounds boring or technical, please bear with me just a little bit, because it's really important.

I'll avoid the word "crisis" because it's not going to one day just implode. It will just quietly get worse and worse, causing our debt to go higher and higher each year regardless of what we do with defense and other big ticket government spending items. Perhaps the gradual, quiet nature makes it an even greater threat.

Social Security sends cash to seniors. The amounts are based on what the senior paid into the system (the deduction on your paycheck labeled "FICA") during her work life, but its not like having a retirement account. The money deducted isn't sitting in an account for you. Rather, it was used to pay the retirement benefits of someone who had previously retired, and any money left over went into the general treasury, where it was spent on something else.

Medicare is the federal health insurance program for seniors. Like Social Security, it is funded by deducting a small bit from your paycheck and /or by deducting a little bit from your Social Security check.

Unfortunately, because there will be fewer workers paying into the system for each retiree in the future, we're going to face one or a combination of the following:

* Dramatic cuts in these programs that seniors rely on and paid for as workers;

* Massive tax hikes on future workers making it hard for them to live as we do now; or

* Massive budget deficits that will make the current deficits seem trivial in comparison

Even if we're only concerned with the "here and now" and don't care about payments to seniors after 2041 (the year there's projected to be nothing left in the Social Security kitty and we'll need to enact massive cuts), it's important to understand that federal spending will be increasing substantially over the next decades because of these programs, worsening our national debt dramatically. Accordingly, we'll still need to increase taxes or suffer much larger deficits than we would if we addressed them.

One thing most experts agree is that solving the problem NOW will be much cheaper and less painful than doing it later.

Therefore, one important question both Senator McCain and Obama should be pressed for an answer on is "What will you do to fix Social Security and Medicare"?

(President Bush, as you'll recall, proposed changes to Social Security for which he has been pilloried. In fact, he is one of the politicians with the courage to point out the system's problems and need for reforms. Whether you support his particular proposal or not, he deserves a lot more credit on this issue than those who pretend the problems don't exist)

Senator Obama's plan attacks the problems faced by Social Security mostly by raising taxes and those by Medicare by reducing spending. He calls for increasing the Social Security contribution of those making in excess of $250,000. On Medicare, he says the federal government will take a more aggressive role in negotiating lower drug prices for seniors. It will also reduce spending to subsidize certain private health care plans seniors can choose in place of tradtional Medicare. These proposals will only address a portion of the shortfall, though. Still, he has put some specifics on the table, and that's a commendable start, but only a start.

Unfortuately, Senator McCain has little specific to say about how he would address these problems. Still, he acknowledges that we cannot address our budget problems long term without doing so. What little he has to say in the way of specifics can be found at pages 4 and 5 in this document. He should be given some credit, at least, for saying that all solutions are "on the table." In contrast, Senator Obama has criticized McCain for being willing to raise the retirement age, which is regrettable. Understanding the problem and be willing to negotiate with everything on the table is the right approach for a President who would likely need to negotatite with a Congress run by the opposition as McCain would sure have to do if elected.

Here's how I see the candidates on this issue, then:



-Recognizes the challenge
-Has some good people on staff who are truly expert on them
-Has made proposals that, if enacted, would make a dent in them


-Proposals don't go far enough
-Appears to have staked out a position against raising the retirement age, which mean that we'll need to raise taxes, higher, cut payments deeper and / or borrow more than if we were to keep this in the mix. He's also sharply criticized any private saving component to a solution.



-Recognizes the challenge
-Has some good people on staff who are truly expert on them
-Rules nothing out, which makes it easier to combine a combination of fixes that will make the solution a little more bearable for all parties concerned (workers and retirees)


-He has offered no concrete proposals (in 2000 he proposed allowing some private savings elements, but there's no mention of that this time around, other than saying that personal savings accounts should be an "important part" of a solution, but without any details it's really hard to know what this means for the system because there's too many variations)

NB: According to this story here, this is not unique to Senator McCain' Social Security position. McCain has generally been keeping details of his policies close to the vest. The story is a bit dated (April), but it's disturbing if that's still the case. Those seeking elected office owe it to us to tell us, to the extent feasible, how they plan to get things done if they're asking for our vote)

Bottom Line: You have a candidate who's made some proposals but ruled out others vs. a candidate who is open to all proposals, but hasn't been willing to offer any of his own yet.

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