Entitlement Reform For the Entitled
By EZEKIEL J. EMANUEL
Philadelphia
IF nothing is done about entitlement spending, and if our current tax breaks continue, then by 2025, tax revenue will be able to pay for Medicare, Medicaid, Social Security, interest on the debt and nothing else. The rest — defense, medical research, highways, education, energy — will have to be financed by deficits. Social Security’s funding is predicted to run short in 2033, Medicare’s trust fund in 2024.
There is a huge technical innacuracy about this paragraph. It sounds SO certain. While there are indeed SOME caveats (If nothing is done ... and if our current tax breaks continue) there is one caveat in particular that needs to bestate and that is AND IF ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS upon which my thesis is based come to pass. In actual point of fact, BECAUSE the U.S. government CAN raise taxes, the Gross Domestic Product might grow at a more favorable rate, unemployment might be reduced, more people might enter or re-enter the work force making significantly more money than they are making at present, then, things won't be so bleary. OR, if things continue going South, things could be worse and the day of "demise" might come sooner. But the main thesis is based on some predictions which in fact WILL NOT COME TO PASS, because that is the nature of intermediate and long term predictions. STUFF HAPPENS! Nonetheless, the forecasts are useful because they provide us with a future scenario which is likely, PROVIDED ALL THE ASSUMPTIONS COME TO PASS.
Like much else in Washington, there is little bipartisan agreement on what to do about it. When it comes to Social Security and Medicare, Republicans emphasize cuts and privatization, while Democrats strongly oppose both approaches. Neither side was able to embrace the 2010 bipartisan Simpson-Bowles plan, which proposed lowering Social Security’s cost-of-living adjustments, increasing the taxable maximum income and raising the eligibility age to 69 by 2075.
But here is a better bipartisan reform: Graduated eligibility. Instead of having a fixed age at which people can get Social Security and Medicare, we should link the age of eligibility to lifetime wealth. The richer you are, the older you would have to be to be eligible for Social Security and Medicare.
The only problem with "graduated eligibility is that it will be opposed by the wealthy. STRONGLY opposed, because they get so little (in comparison) from social security, and they resent having to pay "so much" for "so little" in return, never once considering that the price one will eventually pay for putting into penury the overwhelming majority of a nation's citizens is that eventually, out of desperation, the citizens will rise up in revolt and they will take their anger out on the wealthy, decapitating them and impaling their heads on stakes; burning them alive; guillotining them, as has been done in France (twice). So, it is in the best interests of the wealthy elites, that they pay more in taxes for social insurance. The insurance that they are permitted to continue to frolic about in their social circles without having to fear for the lives (which they should).
Here’s how it would work. People in the bottom half of the lifetime earnings distribution would become eligible for normal retirement benefits at age 65 for Medicare and 66 for Social Security, just as they are today. But people in the next quarter of the lifetime earnings distribution would become eligible for the respective programs at 67 and 68, and those in the top quarter would become eligible at 70 and 71. All eligibility ages would increase over time, as they are scheduled to now.
In all income brackets, those choosing to retire later than the standard age would still receive higher Social Security benefits, called delayed-retirement credits. For those choosing to retire earlier and accept reduced benefits, on the other hand, nothing would change in the lower bracket, while the minimum age would increase in the two higher income brackets. And wealthier older people would have the choice of buying into Medicare at age 65, though they would have to pay for it before the age of 70.
Demographic changes since Social Security was first enacted are a good argument for raising the retirement age. In 1935, a man who reached the age of 65 was likely to live almost 13 more years (and a woman, almost 15). But today, Americans who reach 65 are likely to live nearly 19 more years.
But graduated eligibility also accounts for the fact that the rich live longer than the poor, and that the longevity gap is increasing. In 2007, the Social Security Administration did a study of mortality and income. Among 65-year-old men born in 1922, those with income in the top half lived an average of 2.2 years longer than those in the bottom half. But among 65-year-old men born in 1941, those with income in the top half were projected to live an average of 5.3 years longer. Thus, requiring wealthier Americans to wait five more years to claim Social Security and Medicare has the effect of giving an average rich and an average poor person nearly the same number of years of benefits.
This reform also combines several important values. The main reason Social Security and Medicare have such strong public support is that they are universal benefits; they are not just for the poor. With graduated eligibility, all Americans will still get benefits, regardless of income; the only thing that changes is when. And because the rich, on average, would live longer and get the same number of years of benefits as those in lower income brackets, the plan should appeal to those who still feel strongly that everyone should pay their fair share.
No, they are NOT just for the poor. But, what happens when those who have climbed fairly high up the food chain end up LOSING IT ALL (as has happened to friends of ours who, in their early 50's could never have envisioned that they would be living primarily off of Social Security benefits after a particularly bad career choice ended up costing them 100's of 1,000's of dollars).
It also makes practical sense. Americans in the bottom half of the income distribution are more likely to have jobs in manual labor, which is more physically difficult for older people to perform. White-collar workers in the upper bracket don’t face the same physical demands. And their greater earnings mean they should be able to save more to support themselves longer.
I suspect very few "white collar" people are comfortably well off, and I further suspect that they KNOW IT!
Graduated eligibility should be based on lifetime earnings instead of any particular year’s income, which can be quite volatile. It would be administratively simple to determine each citizen’s lifetime earnings, because the Social Security Administration already has all this data. And this measure would have the benefit of encouraging personal responsibility; people making more than the median income would have an incentive to save. Anyone who earned a lot at one time but frittered it away would have to continue working longer.
Either in the lame duck Congressional session after the election or in 2013, there will surely be debate about a deal to address taxes and the deficit. Graduated eligibility should be on the table. It would not completely close the shortfall of the trust funds, but it would put Social Security and Medicare on a stronger financial footing, while reaffirming their universal nature and reflecting the fortunate fact that Americans are living longer.
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