by John Hawkins | May 24, 2011 2:45 am
Are we going to reform Medicare before 2012? No, unfortunately the Democrats have decided that using Medicare as an election issue is more important than actually doing the right thing for the country. So, they’re going to lie and tell every senior in America that the GOP is going to take their Medicare away. Then the mainstream media will echo their charges without pointing out that the Ryan plan won’t affect “anyone now 55 or older.” Their strategy may even work and if so, Republicans will probably be terrified to touch Medicare again until the program completely collapses — which incidentally, is exactly what we’re headed towards. Let’s talk about that.
1) Medicare and Social Security cannot survive “as is” over the long-term. Our country has 100 trillion dollars in Social Security and Medicare liabilities. Put another way, as the programs are currently structured, we will have to pay out 100 trillion dollars more money than people are going to pay into the programs.
Just to give you some perspective, this year the government is going to take in roughly 2.57 trillion dollars in tax revenue while our national debt, like our gross domestic product, is a little over 14 trillion dollars. There is a gulf as wide as the ocean between what we’re promising retirees and what we can actually deliver.
2) We cannot make up the shortfall with taxes alone. The standard response to every revenue shortfall these days is, “Tax the rich.” However, that’s not going to work this time.
The total present value of payments expected under Social Security and Medicare beyond what is expected to be collected under current tax laws is about $100 trillion. One way to put that amount of money in context is to note that it is about twice the amount of all the net private assets that exist in America today….the best back-of-envelope estimate is that meeting this unfunded portion of our Social Security and Medicare commitments would require roughly an immediate 80 percent increase in federal income taxes, sustained forever.
In other words, what people who don’t want to change the current system are hoping for is that America will essentially be transformed into a society of worker ants who slave away in poverty while the majority of the money they earn goes to keep Social Security, Medicaid, and Medicare humming along for the retirees. Of course, that’s not going to happen. Either people would stop working, work off the books, move to a different country or most likely, force Congress to dramatically curtail benefits.
3) Medicare reform could keep America from going bankrupt. Many people think that this country may EVENTUALLY have trouble paying our bills, but it’s entirely possible that “eventually” will be VERY SOON. Last week, Senator Jeff Sessions said Alan Simpson and Erskine Bowles of Debt Commission fame estimated we could be Greece in as little as 1-2 years. Tom Coburn has said it could be as little as 4 years. Mike Pence is a little more optimistic and pegs it at 10-15 years.
If it happens, the way it will likely happen is that investors will lose confidence in America as a place to invest their money. That would either be because they fear that we won’t pay their money back or more likely, that we’ll print so much money to cover our debts that the value of their investment would suffer. Next thing you know, we’d have to pay out a much higher rate of return to borrow the money to service our debt. That could add hundreds of billions of dollars to our yearly deficit and it would create a rolling snowball effect. The larger our deficit gets, the less confidence investors have, and the more it costs to service our debt until we simply can’t afford to keep the whole charade going any longer.
However, if we were to reform Medicare in such a way that it dramatically reduces our future liabilities, that would shore up confidence in our ability to pay our debts over the long term. It would help us keep the rates at which we’re borrowing money as low as possible and that would go a long way towards helping our country prevent an economic crisis that’s absolutely inevitable unless we change course.
4) The longer we wait, the less impact Medicare reform will have on our long-term financial situation. There are a lot of people who already depend on Medicare and nobody wants to pull the rug out from under them. So, plans to reform Medicare almost always have some lag time before they take effect. The Ryan plan, for example, wouldn’t impact anyone who’s 55 or older.
The problem with this is that the Baby Boomers represent a population bubble. Every year that we wait for reform means more Baby Boomers getting locked into the current unsustainable system that pays out this kind of money.
…The typical husband and wife who reach age 66 and qualify for Social Security. Starting next year, this typical couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime.
5) The longer we wait, the greater the chances are that current retirees will be dramatically impacted. As a society, it’s much better not to promise so much to people than to make promises that we simply won’t be able to keep. If we don’t make changes to the program soon so that more Baby Boomers are put into a new system — and future working class Americans prove unwilling to give up most of the money they earn just to float senior retirees (which seems likely), then our only other option will be to dramatically cut benefits for seniors who are already relying on Medicare and Social Security.
This will likely not be something that anyone wants to do, but you can’t get blood out of a turnip — and if the country goes bankrupt, something is going to have to give. Today Medicare, Medicaid, and Social Security take up roughly half of all tax revenue and by 2052, they’re on track to take up every dime of revenue. This is not reassuring news.
2052 seems like a long time away – and so it is. But, don’t forget – we have a 14 trillion dollar debt we need to pay off and the federal government funds a lot of other things besides those entitlement programs. That money is where defense, intelligence, border security, government salaries, interest payments on the debt, welfare, and even Harry Reid’s precious Cowboy Poetry comes from.
The only way we even have a chance to make sure that current recipients of Social Security and Medicare don’t have their benefits eviscerated, perhaps even in the next few years, is to reform the programs. Either we make reforms or one day, we will be forced to dramatically cut Medicare and Social Security payments, which means seniors who rely on those programs will be left in the lurch.
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