Thursday, October 18, 2018

Mitch McConnell Is Right About Social Security

Truth is something that we are not used to hearing in the current political climate so it can come as a bit of a shock when a politician blurts out a harsh dose of reality. That was the case yesterday when Mitch McConnell confronted the American people with the bitter fact that the deficit is too large and the only way to cut it is by slashing the sacred cows of Social Security, Medicare and Medicaid.

“It’s disappointing but it’s not a Republican problem, McConnell told Bloomberg. “It’s a bipartisan problem. Unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.”

While it is not solely a Republican problem, the GOP has done little in the way of deficit reduction recently. This week the Treasury Department revealed that the deficit grew to $779 billion, its highest level since shortly after the Tea Party revolution. After trimming budgets during the Obama Administration, the Republican Congress enacted tax reform that stimulated the economy but slashed corporate tax revenues. At the same time, spending increased due to a larger military budget as well as increased interest payments on the national debt and increased Social Security spending.

The four percent increase in Social Security spending represents a major part of America’s debt problem. While it is tempting to blame foreign aid, military waste, welfare or a number of other programs for America’s mounting debt, the big three entitlement programs (Social Security, Medicare and Medicaid) together make up a whopping 46 percent of the federal budget per the CBO. The biggest of the big three is Social Security at 23 percent of federal spending.

The entitlement problem is so big that it really doesn’t matter how much cutting we do in other parts of the budget if we don’t reform entitlements. For example, the entire defense budget is only 14 percent of federal spending. The sum total of all foreign aid is only 1.2 percent of the federal budget.

The entitlement programs are at a crisis stage. The Social Security trustee report predicts that in only four years Social Security will begin to pay out more than it takes in. If nothing is done, only 16 years from now in 2034 the Social Security trust fund will be bankrupt.

While McConnell’s truth-telling is a rare act of political courage, it is unlikely that Social Security and other entitlements will be reformed soon. The majority leader’s timing in his truth-telling is less than opportune. Midterm elections are only three weeks away and the Democrats undoubtedly have a pushing-granny-off-the-cliff ad ready to go, just waiting to insert the name of anyone who touches the third rail of American politics.

The truth is that not even conservative voters really want to reform Social Security. Many conservatives have bought into the lie that the Social Security tax that comes out of their paychecks is a contribution that goes into their account. In reality, involuntary Social Security “contributions” go into a trust fund, per the Social Security Administration, from which benefits are paid from the trust fund and the excess “must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government.” This is another way of saying that the Social Security benefits are paid from current contributions. Any funds left over are loaned to the federal government, which must pay them back with interest.

The plan of using current Social Security taxes to pay current retirees worked well at first. But the architects of Social Security did not foresee the Baby Boom. Now, as Baby Boomers retire in droves, fewer workers are being asked to support more and more retirees. There are only two options to save Social Security: Cut benefits or increase taxes.

Voters seem to be of two minds about Social Security. On one hand, many believe that Social Security is a socialist Ponzi scheme, redistributing wealth from workers to retirees. Nevertheless, the voters also become militant at the very suggestion that benefits might be cut and that they could lose some of their “contributions.”

Even though there is no individual account containing their Social Security savings, American workers have been promised that their taxes will go to fund their retirement. It would be unconscionable for the government to break this promise to those in or near retirement. That is why Republican plans to reform the entitlements would preserve the status quo for retirees and older workers while giving younger workers the option to take part in a plan that has a better chance of being there when they retire.

Mitch McConnell gets credit for facing the tough problem that is America’s entitlement crisis. The majority leader realizes that the deficit crisis cannot be solved without reforming the sacred cow entitlement programs. Unfortunately, admitting that there is a problem is not the same as being able to solve it.

Originally published on The Resurgent

No comments: