Social Security & Medicare Not Causing Deficit


Social Security and Medicare are not the cause of America's fiscal distress.

In 2001, CBO projected that combined Social Security and Medicare spending (orange bars in chart above) would equal $1,211 billion in 2011.  Last year, combined Social Security and Medicare spending (green bars) amounted to
. . . $1,216 billion.  In other words, as this chart demonstrates, Social Security and Medicare spending combined last year was exactly what CBO projected it would be back in 2001 when CBO was projecting a $900 billion federal budget surplus.  At the same time, as the chart also demonstrates, total federal spending (red line) rose much faster that was projected (blue line). As a result, the federal government spent a trillion dollars more in 2011 than was projected the day Bill Clinton left office. It is unambiguously clear that the additional trillion dollars in spending came from somewhere else, not the retirement programs.

The charlatans in Washington will just have to look elsewhere for a fall guy to blame the evaporating surplus on.  Therefore, it is the nastiest form of sophistry for both parties and the president to insist, as they do, that old people must suffer lower benefits to pony up their “fair share” in reducing the deficit.

Are Social Security and Medicare poorly designed retirement programs that gyp workers on a lifetime of paying into the system every payday?  You bet. Could they be improved?  Absolutely.  Would the lives of both retired folks and workers in the future be improved vastly by gradually transforming Social Security and Medicare into market-based programs that allow workers to invest their contributions in the economy during their working years rather than giving their hard-earned money over to the government to spend? It’s a dead-level certainty. 

Don’t delude yourself for a nanosecond, however, that cutting these programs as Washington intends is real reform or pro-growth.  Cutting Social Security and Medicare as Washington is talking about  --  by chiseling COLAs, transforming the reitrement programs from earned-benefit programs into welfare programs by means testing them, raising the retirement age and raising/eliminating the income cap on payroll taxes paid by workers  --  will not preserve these government relics nor will it raise economic growth by one basis point.

Social Security is like a ship at sea with a serious but not imminently threatening breach in its hull.  The ship will remain seaworthy long enough to make port safely if it steams full ahead on a straight course.  While the ship is in no danger of sinking anytime soon, the breach is large enough that the pumps can’t keep up with the water being taken on so the captain cannot simply ignore it.  It would, in fact, be criminally irresponsible for him just to float about or steam in circles as his passengers partied on as if nothing were wrong for if he dawdles at sea too long, it will delay the ship’s progress past the point of no return, and she will sink before reaching port safely. 

By the same token, it makes no sense for the captain to panic and order the crew to suddenly start cannibalizing the engine for material to repair the breach while trying to keep the ship under steam.  Such precipitous action would impede the vessel’s progress or even leave it dead in the water and unable to steam ahead on its own toward port.  Even crazier would be for the captain to order the crew to throw the oldest and frailest passengers overboard in an attempt to make the ship more buoyant in the ill-fated hope that the breach will rise above the water line.  But that is exactly what Washington’s panicky politicians are proposing to do where Social Security is concerned. 

First, they propose to cannibalize the economy by raising taxes on economically productive activities—working, saving, investing and taking entrepreneurial risks.  This irresponsible action will only damage the economic engine that drives the program forward. 

Second, they are proposing to throw senior citizens overboard by cutting Social Security benefits.  For the fittest oldsters, they want to send them down to the bilge room to work overtime manning the pumps.  Worst of all, they plan to impress all retirees into government dependency by transforming Social Security from an earned-benefits program—albeit it an abysmally designed earned-benefits program—into a welfare program by means testing it and forcing higher income workers to pay even higher Social Security taxes.
 

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