Jim Powell

Runaway federal spending isn’t likely to be brought under control as long as the major entitlements – Social Security, Medicare and Medicaid – remain out of control. The number of entitlement beneficiaries is growing faster than the number of taxpayers, entitlements account for more than half of federal spending, and unfunded liabilities (obligations not covered by payroll taxes) exceed $100 trillion.

To be sure, the Social Security and Medicare Boards of Trustees just released a report that tries to be upbeat, claiming Obamacare improves the long-term prospects of those entitlement programs. But readers who venture beyond the headlines find that the report is thoroughly hedged. For example, alleged benefits for Medicare are “premised on the assumption” that Obamacare would make the health care sector more efficient. Then the report concedes: “achieving this objective for long periods of time may prove difficult.” If like so many government programs – including Social Security and Medicare – Obamacare doesn’t work as advertised, “actual long-range costs would be larger than those projected.” And of course, such speculation about Obamacare would end if it’s struck down as unconstitutional.

There have been many thoughtful proposals about how to help the entitlements. Perhaps the most familiar is (1) enable younger workers to direct a significant portion of their payroll taxes into individually-owned retirement accounts that would be invested in a prudently-diversified portfolio to help provide for their retirement, and (2) have people who are or soon will be Social Security beneficiaries paid out of the government’s general revenues. Another perennial recommendation: since people are living longer and often working longer, the age of eligibility for full Social Security benefits could be gradually pushed back a few years.

More controversial: indexing Social Security payments could be phased out, since it isn’t fair or financially sustainable that working people — whose payroll taxes support Social Security — are exposed to inflation, while the rapidly-growing legions of beneficiaries are protected against inflation. Social Security and Medicare along with payroll tax revenue could be transferred to the states, so they could explore sustainable alternatives to the unsustainable current system. The federal government could give states Medicaid block grants rather than open-ended subsidies. Regardless of the merits, probably these and other proposals would encounter fierce resistance from beneficiaries screaming “Don’t touch my Social Security! Don’t touch my Medicare! Don’t touch my Medicaid!”


Jim Powell

Jim Powell is a senior fellow at the Cato Institute in Washington DC.