Former Congressional Budget Office Director Douglas Elmendorf has just offered his prescription for addressing the long-term costs of Social Security and Medicare at a time, he says, when the federal debt is on a dangerous upward trajectory and is larger compared with the overall economy than at almost any time in history.
“Therefore, cuts in Social Security or Medicare benefits, or increases in taxes used to finance those programs, will almost certainly be needed to put federal debt on a sustainable path,” Elmendorf wrote in an op-ed in The Washington Post.
In deciding precisely how to go about slowing the growth of the $18.3 trillion debt with an aging population, Elmendorf cautioned, two important factors must be kept in mind: Incomes for all but the wealthiest Americans have grown quite slowly in recent decades and changes in labor markets are significantly diminishing the role of traditional employer-provided retirement benefits.
Few issues in Washington are more sensitive than that of entitlement reform. And needless to say, it’s a lot easier for policy wonks and academics like Elmendorf to make these pronouncements than lawmakers and politicians who must answer to voters. With so much at stake financially for a politically potent bloc of seniors and others approaching their retirement years, open talk of reforming Social Security and Medicare health benefits for seniors entails considerable political risk.
Ohio Gov. John Kasich is the latest Republican presidential candidate to touch the dangerous “Third Rail of Politics” by strongly advocating major reforms of Social Security and other entitlements to slow the growth of the federal debt.
Like New Jersey Gov. Chris Christie before him, Kasich last Friday caused an uproar in New Hampshire by warning that seniors would have to “get over” cuts in their Social Security benefits if he is elected president and carries out his entitlement reform initiatives.
"We can't balance a budget without entitlement reform,” Kasich said during NH1's "Fiscal Fridays" series in Concord. “What are we, kidding?" the one time House Budget Committee Chair said when asked about his opponents who say they won't touch entitlements, according to CNN. Later that day, Kasich declared at a town hall meeting in Stratham that: “You’re on Medicare and you want me to ignore the fact that it’s going broke, you’re not going to like me.”
For his efforts, the New Hampshire Democratic Party circulated a video of Kasich’s comments, saying that Kasich “threatened our Granite State seniors.”
Though he wasn’t responding directly to Kasich, Elmendorf offered a criticism of the kind of cuts Kasich appeared to endorse. “If we narrowed the gap between federal revenue and spending through significant across-the-board cuts in Social Security and Medicare, we would significantly reduce total retirement income for many lower- and middle-income people,” he wrote. “That approach would be wrong, in my view, because it would impose a large burden on the people who have been experiencing the slowest income growth. It would also be wrong because those benefits have distinctive characteristics that are even more important for people who do not have defined-benefit pensions.”
Rather than going after benefits across the board, Elmendorf said he would focus on reducing Social Security and Medicare benefits for high-income beneficiaries and raising the ceiling on payroll taxes on workers with high earnings. “Taken together, such targeted measures could eliminate much of the estimated 75 year shortfall in the system,” he wrote, citing previous CBO studies. “In Medicare, additional tax revenue could be raised by boosting the payroll tax rate for workers with higher earnings.”
Kasich revealed last week that he wants to “privatize” Social Security for future seniors and reduce benefits for baby boomers who are nearing retirement. Kasich said that he’s not sure yet of the precise nature of his reforms “because I gotta go back and do all the numbers again.” As for younger Americans many years away from retirement, “I still like the idea of giving them an opportunity to earn money through the strength of our American economy, with Social Security included in that.”
Elmendorf differs with Kasich and Christie on the best approach to curtailing growth in entitlement costs and argues that “some of the standard arrows in reformers’ quivers should be a last rather than a first resort.”
For instance, he argues that an increase in the eligibility age for all retirement benefits in Social Security “would reduce monthly benefits for everyone who chose to retire at the same age as they would under current law, and it would reduce the number of years of benefits for everyone who chose to retire later.”
“That change would be especially harmful for lower-income people,” he wrote.