Republicans and Entitlement Reform

Here are some facts courtesy of the Congressional Budget Office. Federal debt as a percentage of GDP spiked to nearly 100% of GDP during World War II. Between the end of the war and the financial crisis of 2008, debt as a percentage of GDP stayed constant between 20% and 40%. Now, debt has now returned to WWII levels and is projected to reach 107% in 2033. It is then expected to climb even higher, rising to 195 percent of GDP in 2053.

Debt this high will not just slow economic growth. It will heighten the risk of a fiscal crisis with unprecedented, unimaginable consequences. We need leaders who are willing to speak the truth: Social Security and Medicare are the main drivers of our debt, and if Social Security and Medicare aren’t reformed, these programs won’t exist for my generation and future generations.

Over a decade ago, Congressman Paul Ryan developed a comprehensive plan to overhaul these entitlement programs. We can debate whether his plan it went too far, but Ryan was trying to put our nation on a sustainable fiscal trajectory. As a reward for showing leadership, Paul Ryan was accused by the Obama-Biden team of wanting to kill old people.

Democrats have long demagogued the issue of entitlement reform. But Republicans are now doing the same thing. Specifically, I’m referring to Donald Trump. In a post on ThruthSocial, Trump called Ron DeSantis a “A WHEELCHAIR OVER THE CLIFF KIND OF GUY, JUST LIKE HIS HERO, failed politician Paul Ryan.” Trump makes such a claim because DeSantis previously embraced entitlement reform. Other top Republicans are falling in line behind Trump. In an appearance on Donald Trump Jr.’s podcast, Kevin McCarthy declared that Republicans would never touch Medicare or Social Security.

But facts are facts: we are spending a tremendous amount of money on Social Security and Medicare, and, as the Baby Boomers retire, the price tag will increase dramatically.

Consider the recently released reports from the Boards of Trustees of Social Security and the Board of Trustees of Medicare. Composed of top Biden administration officials like Treasury Secretary Janet L. Yellen and Health and Human Services Secretary Xavier Becerra, these boards project that Medicare funds will be exhausted in 2031 and Social Security benefits will be exhausted in 2033. Upon insolvency, all retirees regardless of age, income, or need will face drastic cuts to their benefits. We need to act now.

I want to credit to Biden and the Democrats for passing a reform that will allow Medicare officials to negotiate with pharmaceutical companies for lower drug prices. As Heather Cox Richardson, author of a popular Substack newsletter, points out, “This measure is projected to reduce the deficit by $159 billion.” I’m also okay with Biden’s proposal to raise the Medicare tax rate for those earning more than $400,000 a year. As Biden argues, “When Medicare was passed, the wealthiest 1 percent of Americans didn’t have more than five times the wealth of the bottom 50 percent combined. It only makes sense that some adjustments be made to reflect that reality today.”

While it is true that there is greater income inequality today than in 1965 and 1935, it is also true that other things have changed from when Social Security and Medicare were created. Most importantly, there is the change in life expectancy. In 1935, the average life expectancy at birth in the U.S. was only 59 years for men and 63 years for women, but the age of eligibility for Social Security was 65. Today, Social Security’s eligibility age is 67. Then there is Medicare, which was created in 1965. Back then, life expectancy was about 67 for males and 74 for females. At that time, the age of eligibility for medicare was 65. Today the age of eligibility is, get this, still 65!

Another change relates to the number of people paying into the system compared to the number of beneficiaries. As former CBO director Douglas Elmendorf writes, “Twenty-five years ago, the number of people age 65 or older was about 20 percent of the number of people between ages 20 and 64; twenty-five years from now, that fraction will be about 40 percent. This represents a doubling of the number of people for whom the federal government provides substantial support relative to the number of people who are working and paying much of the tax bill.”

Some think that tax hikes on the wealthy will do the trick. Heather Cox Richardson writes that “reversing 40 years of Republican tax cuts would address financial shortfalls related to entitlement program.” I agree with Richardson that we should consider ways to increase revenue, but tax hikes on the wealthy won’t do the trick. Thirdway, a self-described left-of-center think tank, argues that “raising taxes on top earners is necessary, but it is not sufficient to solve the looming fiscal crisis.” Analysts from Thirdway ran a simulation that would leave entitlements on autopilot. Relying on taxes alone to hold long-term deficits at 3% of GDP would require phasing in a 60% tax increase on the median-income family. Meanwhile, Manhattan Institute’s Brian Riedl writes, "Doubling the top tax brackets would close just one-fifth of the long-term Social Security and Medicare shortfall. Even seizing all annual income earned over $500,000 would not come close…..Balancing the long-term budget without reforming Social Security and Medicare (and fast-growing Medicaid) would require nearly doubling income-tax rates across the board or eliminating nearly every remaining federal function.” Riedl is on the right side of the political spectrum, but the same can’t be said about the Committee for a Responsible Federal Budget. They also reject the idea that taxes on the wealthy will be enough to close the long-term debt.

So if raising taxes on the wealthy won’t do the trick alone, what else can be done?

We should also cut Social Security benefits for the super wealthy. CBO data show that 6.3 million elderly Americans live in households that earn annual market incomes of at least $87,200 for a single person or $123,400 for a two-person household. Meanwhile, raising taxes on those who earn more than the current Social Security taxable maximum of $160,000 per year could save $670 billion over 10 years. Finally, we need to raise the retirement age reflecting the fact that lifespans have increased. The life expectancy is now 73 years for men and 79 years for women.

With Medicare, as with Social Security, we should increase the age of eligibility. We should also cut benefits for the super wealthy. It makes sense that upper-income families receive Medicare Part A benefits (hospital insurance), because people have paid payroll taxes throughout their working lives to fund the program and, therefore, are entitled to receive benefits when they get older. But Medicare Part B (physician benefits) and Part D (prescription drugs) aren’t pre-funded with payroll taxes. For Part B and Part D, the majority of retirees pay premiums and then taxpayers foot the rest of the bill. As Riedl writes, “CBO estimates that, by 2030, Medicare Parts B and D will have a combined gross budgetary cost of $15,111 per enrollee annually. This will be financed by an average senior premium payment of $3,944 and a taxpayer-funded subsidy of $11,167 per enrolled retiree.”

Rich retirees should’t be receiving these subsidies. We should also transition to a defined-contribution (premium-support) system, in which beneficiaries pay a higher percentage of their monthly premiums.

I’ve been very brief when it comes to potential reforms. I’m not an expert by any stretch of the imagination. But my larger point is that we need politicians who are willing to take on the demagogues, Democrat and Republican alike, who tell us that we can’t reform entitlement programs. I’m heartened by the fact that Nikki Haley is speaking of these “hard truths” to voters in Iowa, New Hampshire, and South Carolina. I’m heartened by Mike Pence’s comment that we wants to reform the “New Deal” to give my generation and younger generations a “Better Deal.” I hope other entrants into the race are also willing to tackle entitlement reform.