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Progressives and the Safety Net
Conservative extremism has made any talk of entitlement reform verboten on the left. That will ultimately be self-defeating.
Something wonderful happened in the United States during the middle third of the twentieth century. After decades of policies that smacked of Social Darwinism, our country created a strong, if incomplete, social-insurance safety net. The actions our government took expressed a solemn promise to vulnerable Americans. Social Security and Medicare assured the elderly and disabled basic cash income and health care roughly similar to that enjoyed by the rest of the population. They lifted the elderly and disabled from a status of privation to near equality with the nonelderly in both money income and access to health care. Various other federal programs provided food, housing, and educational support, or encouraged their provision by state and local governments. By official measures, poverty among the elderly fell below that of other age groups thanks to Social Security, and health coverage improved markedly for the nonelderly poor because of Medicaid.
Now, in the second decade of the twenty-first century, these advances are under attack and that solemn promise is in jeopardy. To be sure, these programs enjoy enormous popularity. At the same time, however, a solid minority has never accepted the idea that taxes should be used to pay for pensions and health insurance. As long as economic growth generated enough revenue to pay for these programs and the rest of government’s commitments, opponents of social insurance and other elements of the safety net gained little political traction. Three deficit reduction plans enacted during the presidencies of George H.W. Bush and Bill Clinton, along with sustained economic growth, produced budget surpluses in the late 1990s and early 2000s.
But then everything changed, and the national debt ballooned. The recessions of 2001 and 2007-2009 led to higher unemployment and lower revenues. Imprudent tax cuts slashed revenues still more. Wars in Iraq and Afghanistan following the tragedy of 9/11 led to huge increases in military spending. As a result, large and seemingly limitless deficits emerged, and budgetary angst has become epidemic.
In addition, official projections have warned that retiring baby boomers and rapidly rising health-care costs will cause Social Security and Medicare benefits to greatly outpace program revenues. Although these long-term forces have little to do with current budget deficits, they have combined to generate a sense of fiscal crisis. On top of this comes the “fiscal cliff,” the concatenation of dubious fiscal decisions timed to take effect almost simultaneously. The tax cuts enacted during President George W. Bush’s first term and the payroll-tax holiday enacted in early 2011 are set to expire on December 31, 2012. The government debt will soon breach the ceiling set in August 2011. Mindless spending cuts passed in 2011, based on formulas that pay no heed to the relative importance of programs and that have nothing to recommend them other than simplicity, are also to begin on New Year’s Day 2013.
Analysts agree that if all of the tax increases and expenditure cuts take effect, economic activity will slow, and a weak recovery will morph into recession. Failure to raise the debt ceiling would wreak tsunami-like devastation on financial markets that would inundate the rest of the U.S. and world economy.
Against this backdrop, the American public is being told that the cause of looming financial catastrophe is an “entitlement crisis.” Fiscal Jeremiahs warn that the only way to deal effectively with current deficits is to cut back Social Security, Medicare, and Medicaid years in the future. The full House of Representatives has twice passed budget plans, crafted by Budget Committee Chairman Paul Ryan, that would replace Medicare with a voucher that beneficiaries could use to buy either private insurance or a plan like traditional Medicare. The Ryan plan would also convert Medicaid into a block grant at spending levels well below what is projected under current law. The grants would not increase during recessions when Medicaid enrollments tend to spike. States, pinched by falling revenues and rising service demands, would have to cut benefits just when they are most needed.
But while reports of a crisis are overblown, and conservative proposals to solve it are draconian, progressives do need to think about how best to reform the entitlement programs. The simple fact is that Social Security, Medicare, and Medicaid form a very large and growing part of the federal budget—currently 50 percent of noninterest spending. Furthermore, the phrase “entitlement crisis” has been repeated so often and so earnestly that denying its reality is more likely to damage one’s own credibility than to dislodge what is actually profound confusion. Cuts in Social Security, Medicare, and Medicaid benefits are neither necessary nor desirable and should be resisted, even as reform of the whole health-care delivery system proceeds. But political and economic realities—the need to secure majority support for measures to lower deficits once economic recovery is well advanced—make some cuts highly likely. It behooves supporters of social insurance to have in reserve program cuts that would do the least harm and might advance other meritorious objectives. To begin this search, one should start with the underlying economic and demographic forces that are driving spending.
Demographics and Entitlements
Three demographic facts are key. Longevity is increasing. In contrast to the past, when life expectancy increased due mostly to declining mortality rates among infants and the young, almost all current and future longevity gains will occur among the old. Large groups of Americans are not sharing in these longevity gains.
I have paid into Medicare befor and after retirment It is my right. Social Security should be made a more liveable income.A large % of us worked with our bodys and are able to work longer.
Dec 10, 2012, 1:21 PMAre the top 30% of Social Security filers really high earners? Averaging $57,000 per year doesn't seem very high on the hog. Such would be early retirees may need to retire, due to unemployment or health problems, and have few other resources besides Social Security. Hank, if you are serious about this proposal, I suggest moving up the income scale to the top 20% at most and exempting those in that group who have small assets or pensions even then (that is, little other income to sustain them). But then as Dean Baker suggests the administrative cost of doing a real means test, one that takes into account other income would be high and eat into the savings. So really this part of your proposal is complicated by the details and therefore I hope a non-starter.
Dec 11, 2012, 5:39 AMWho the fuck is Henry J. Aaron? Is he going to depend on Medicare for health care in his elderly years? My bet is, "no." The only people calling for cuts in Medicare benefits are the ones who will never need the program for health care, i.e., in order to live.
I'm so sick and goddamn tired of the notion that programs helping the most vulnerable members of society live a dignified life must be cut in return for raising tax rates on wealthy people! That does not compute!
This trade off is in no way "balanced," "fair," "shared sacrifice" or any other euphemism used to disguise cruel cuts to any people who aren't wealthy.
FUCK YOU, HENRY J. AARON!!! FUCK YOU!
Dec 11, 2012, 12:19 PMThis is an excellent piece and I will keep it on hand to send to people. Common sense plus deep knowledge goes a long way. But the discussion at the end of encouraging people to work longer includes the phrase "at full employment." Many seem to be asking now if we will ever have full employment thanks to automation and corporate power. If something like that is true, what are the implications for encouraging longer work lives?
Dec 12, 2012, 3:22 AMfor the last time..we spend 4.5% of our economy on national defense German & Japan 1.5% European welfare state and our defense budget not going to happen..no the answer is not to be "like European welfare programs, he answer is to charge the "tax/user fee" to Eure & japan..they need middle eastern oil more han usa does
Dec 12, 2012, 1:20 PMRecently published EOCD data on health care expenditures make it clear that health care in the US costs several thousand dollars more per capita than the next highest per capita spender, Norway. Yet our health outcomes are worse (we rank 34th in a combined health & social indicator index). Aaron should take a look at economist Dean Baker on the relationship between out-of-control health care costs and the deficit.
Dec 13, 2012, 10:44 AMGood article but I cannot believe that there is any "solid minority" (whatever that means)that continues to oppose use of tax dollars for pensions and health care. I think the author is "crying wolf" on that score.
Putnam McDowell
Dec 14, 2012, 12:15 PMThis is the kind of article that drives many people crazy. It pretends to be a balanced, objective look at entitlements, but rejects (and pretends to misunderstand) even such basic changes as raising the retirement age. Aaron claims it's not a retirement age, but the age at which full benefits - as if raising that age will have no impact on when people actually retire.
The article even seems to suggest spending more money on some aspects of entitlement - as if living longer should entitle you to a higher pension.
The Republicans maybe foolishly tone deaf on taxes, but Democrats are just as foolish on entitlements. I'd hope progressives would be more realistic.
Dec 17, 2012, 10:25 AMDr. Aaron gets a lot right in this article but what he doesn't acknowledge is the powerful force of age discrimination that makes it difficult or impossible for many Americans in their 50s, 60s, and 70s to continue working in jobs with decent pay and benefits. A lot of folks in this age bracket would LIKE to keep working but either are laid off or can't get hired. What's the solution to that?
Jan 6, 2013, 11:15 PMWhy not allow Medicare to sell competitively priced policies to individuals under age 65? This would expand its asset pool in relation to its liability pool and thereby reduce its drag on future federal budgets. It would also give consumers greater choice.
Jan 8, 2013, 2:55 PMWhy not allow people under 65 to buy a Medicare policy that would be priced competitively AND allow Medicare to make a profit. Medicare's added assets would expand relative to its added liabilities.
Jan 8, 2013, 2:57 PM"I have paid into Medicare befor and after retirment It is my right. "
You didn't pay in enough. The baby boomer generation skated by their prime earning years with historically low taxes, and now demand the rest of us pay for their lack of foresight. You paid for the medical care of 1995.
Frankly, it comes down to not being able to afford everything. If we pay for the $4000/night hospitals, maybe we shouldn't. If we pay for the $30,000 new drugs that haven't even been fully proven, maybe we shouldn't. If we approve every use of government insurance money without question, maybe we shouldn't.
There are lots of ways to save money, but don't tell me that because you paid in 1.57% of your income in Medicare taxes that you are entitled to $10M in care. The math doesn't work.
Jan 23, 2013, 12:18 AMAll the demographics is just a smoke screen and when Progressives let the conversation turn in that direction they lose the battle by ceding the terms of discussion.
First, Social Security needs a few tweaks but is basically fine. It can pay full benefits until 2035 and 75% thereafter. Raising the income cap limits and adjusting the benefit formulas so people who need it most do a little better while those at the top do a little worse ought to be enough to make the program sustainable for the foreseeable future.
The problem is not Medicare but medical costs. Americans pay twice as much per capita in medical costs as those in other wealth nations. Our patent system grants drug companies profits of $290 billion a year on drugs that cost $30 billion to produce.
Medicare does not allow people to travel to foreign countries for care, meaning no free trade in medical costs. Yet countries like Thailand do procedures like bypass surgery at a fourth of the cost of the U.S. and with outcomes that are better.
The economist Dean Baker has written extensively about how our medical costs are out of line and has offered some reasonable proposals on how we could fix that. The fact is that if we had medical costs in line with other wealthy countries our current deficits would disappear.
The demographic argument is designed to invoke generational warfare. That's not to say that demographics aren't a factor but they aren't the primary consideration. A public option, pay for performance and outcomes rather than procedures, and patent reform would do better at addressing the issues that confront us. The Right wants to keep this argument on its current turf because it's an argument that actually undermines the premise of a safety net. Progressives shouldn't fall for that.
It is interesting that the only entitlements that are targeted and discussed are for the non-wealthy. Corporate welfare/entitlements cost us all more than any of us can envision.
Congress is paid by corporate lobbyist who then approve even more entitlements to the rich and shameless while touting cuts to the poor.
Feb 6, 2013, 10:37 PMSocial Security benefits have been cut and are too low, but we should just accept that they must be cut further? That's just dumb defeatism.
Raise the FICA, to preserve scheduled benefits, and offset the increase on each paycheck with an income tax credit, penny for penny. I want to see Nordquist complain about an income tax cut (because it would apply only to wages under the earnings cap and would be merely revenue-neutral).
Feb 9, 2013, 3:32 PMPost a Comment
Henry J. Aaron is the Bruce and Virginia MacLaury Senior Fellow at the Brookings Institution. The views expressed here are his own and do not necessarily represent those of the trustees, officers, or other staff of the Brookings Institution.
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