3 Ways to Fix Social Security

Plus, the polarizing responses to Elizabeth Warren’s student debt plan

3 Democratic Plans to Fix Social Security

According to the annual report released Monday, the combined trust funds for Social Security, currently valued at $2.9 trillion, will be exhausted by 2035 (see the chart from CQ Roll Call below). At that time, the Social Security system will have to cut benefit payments by about 20% — unless, that is, Congress acts in the meantime to stabilize the program’s finances.

The good news is that there is no shortage of ideas for how to fix Social Security so that it continues to pay out full benefits for many decades to come. Roll Call’s Doug Sword highlighted some of the leading legislative proposals Tuesday:

• A plan to raise the payroll tax cap and tax investment income: A bill spearheaded by presidential candidate Sen. Bernie Sanders (I-VT) and Rep. Peter A. DeFazio (D-OR) would apply the current Social Security payroll tax of 12.4% to incomes over $250,000. The tax, which is split between employers and employees, currently applies only to incomes up to $132,900. In addition, the bill would create a new 6.2% tax on investment income for high-earning households ($200,000 for individuals, $250,000 for couples). Sanders says these changes would affect less than 2% of wage earners.

The increased revenues from these taxes would be used to provide more generous benefits while pushing the trust funds’ exhaustion date back to 2071.

• A straightforward payroll tax cap increase: A bill from Sen. Mazie K. Hirono (D-HI) and Rep. Ted Deutch (D-FL) would phase out the Social Security earnings cap over seven years, while also making the inflation adjustment used for benefit increases more generous. Social Security’s actuaries said this approach would keep the Social Security trust funds solvent until 2053.

• A plan for permanent solvency: A bill from Rep. John B. Larson (D-CT), Sen. Richard Blumenthal (D-CT) and Sen. Chris Van Hollen (D-MD) would apply the payroll tax to incomes over $400,000 while phasing in a higher tax rate of 14.8% over 24 years. The lawmakers also propose to increase Social Security benefits, shield more benefits from income tax and provide a higher minimum benefit for low-income retirees. The plan, which has 203 House co-sponsors, would extend the solvency of the Social Security trust funds for at least 75 years, the projection period used by the Social Security actuaries.

Roll Call’s Sword says that Larson’s plan has the best chance to move forward in the current Congress, although it’s unlikely that any House plan will advance to the GOP-controlled Senate. One key Republican, Rep. Tom Reed (NY), the ranking member on the Ways and Means Social Security subcommittee, made his opposition to any bill that increases taxes clear at a hearing earlier this month.

“The mission of the Republicans on this subcommittee is to secure benefits without tax increases,” said Reed, adding that by 2043, Larson’s bill would impose an additional payroll tax of $600 on someone making $50,000 a year.

To Rein in Medicare Costs, Trump Administration Wants to ‘Radically Elevate’ Primary Care

Trump administration officials on Monday unveiled an ambitious experiment that seeks to transform Americans’ basic health care and lower costs by offering five new ways to pay primary-care doctors. The initiative is intended to reward doctors for keeping patients healthy and steer them away from Medicare’s fee-for-service system, which experts say can create incentives to provide more care rather than better care.

The new program, called the CMS Primary Cares Initiative, is voluntary, but the administration hopes that one fourth of primary-care providers and a similar share of the 44 million Americans on Medicare will enroll. The program will begin in January 2020.

Health and Human Services Secretary Alex Azar said Monday that the announcement will be remembered as “a historic turning point” for the American health care system.

“This initiative will radically elevate the importance of primary care in American medicine, move toward a system where providers are paid for outcomes rather than procedures, and free doctors to focus on the patients in front of them, rather than the paperwork we send them,” he said.

The new initiative “does not expressly say that Medicare will pay providers for responding to weekend emails or text messages from chronically ill patients, or for doing online or in-home visit to address emergent problems as soon as they arise. But those are the kinds of measures health officials want to encourage primary care doctors to take,” STAT’s Casey Ross writes.

Adam Boehler, director of Medicare’s innovation institute, said that providers participating in the new standard payment model could risk losing 10% of their revenue but also stand to gain as much as 50% depending on their success in keeping patients healthy and out of the hospital.

Why it matters: The Centers for Medicare and Medicaid Services recently projected that spending on medical services will grow 5.5% a year over the next eight years, reaching $6 trillion annually, or nearly 20 percent of GDP, by 2027. “This new initiative is the most sweeping attempt to date to change primary care, an area that accounts for about 3 percent of costs but influences the trajectory of illnesses that account for a much greater percentage of expenses,” STAT’s Ross says.

You can read more about the five new payment models at the Centers for Medicare and Medicaid Services site or at STAT.

Quote of the Day: The Supply-Side Revolution Continues

“Before Reagan, the national debt-to-GDP ratio had been declining since World War II, thanks in large part to the old Republican school of fiscal discipline. Since Reagan, the debt ratio has been climbing back toward its wartime peak. Trade and migration barriers have also come down. American society has become both wealthier in real GPD terms and more unequal. These trends have persisted thanks to a post-Cold War, bipartisan free market consensus, and to the bipartisan Keynesian response to the last financial crisis—but it was the supply-siders who really got the party started.”

– Politico’s Ben Schreckinger, “Reagan’s Supply-Side Warriors Blaze a Comeback Under Trump”

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This isn't the type of budget concern we usually cover, but “Jeopardy” champion James Holzhauer reportedly may be shaking up the game show's budget by winning so much.



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The Polarized Reponses to Elizabeth Warren's Student Debt Relief Plan

We told you yesterday about Elizabeth Warren’s new plan to make two- and four-year public colleges free for students and cancel up to $50,000 in student loan debt for millions of Americans.

The proposal generated a wide range of responses, including questions about the structure and fairness of the student debt forgiveness. “While experts who study student loan debt say widespread forgiveness would boost the economy, some question whether it is the most effective way to stimulate the economy — or the best method to ease the strain on the borrowers who need relief most,” CNBC’s Jacob Pramuk notes.

Some critiques, criticisms and defenses of Warren’s plan:

It could create some bad incentives: Len Burman of the Tax Policy Center said that the way Warren’s debt cancellation phases out for those with incomes between $100,000 and $250,000 “would create a strong work disincentive” and could potentially have some strange effects. “For example, well-paid young people with $50k in loans might quit their job when annual income reaches the phaseout threshold and take a vacation partly financed by their loan abatement,” he tweeted. “The labor market distortion could be avoided by stating at the outset that the amount of forgiveness will be based on prior-year income. Or it could be reduced by spreading the loan forgiveness over several years.”

It could drive up tuition: “Universities will continue to do what they’ve been able to do for decades, and that’s increase tuition, because they [will] know there are policies like debt-cancellation and loan forgiveness,” Lindsey Burke, the director of the Center for Education Policy at the conservative Heritage Foundation, told The Atlantic. “They enable universities to be as profligate as they always have been.”

It would be unfair, and could create a moral hazard: What about the people who chose to go to a less expensive school, or who made other life decisions in order to be able to afford college and student loans? “There are those who may have taken higher-paying jobs they didn't necessarily want to pay off loans. And there are those who have cut expenses to the bare bones to pay off loans while watching their friends with similar salaries eat out and travel and deprioritize paying off loans,” The Washington Examiner’s Philip Klein wrote, sparking a Twitter backlash. “Those who were more responsible will feel justifiably enraged at the idea that those who may have been more profligate will now get a bailout from the government.”

It may not help people who need help the most: “People who go to college typically earn higher incomes than those who don’t. So debt forgiveness takes tax revenue — which comes from taxpayers, not from the money tree — and redistributes it to those who are relatively well-off,” wrote Michael R. Strain, director of economic policy studies at the right-leaning American Enterprise Institute. “I’d rather spend the marginal taxpayer dollar expanding economic opportunity for the working poor than giving a subsidy to relatively well-off households.”

Matthew Chingos, the vice president of education data and policy at the left-leaning Urban Institute, said the proposal could even be seen as Trumpian: “I think you also are going to see some concerns from the left that if you are wiping out all the debt, that that would be a pretty regressive thing to do,” he told CNBC. “And once you look at the numbers, this looks like the Trump tax cuts in terms of who it benefits. So it’s a little hard to be out there saying, well, ‘I’m against tax cuts for the wealthy, but at the same time I want to give this big handout to the wealthy.’”

But Warren has tried to address that concern: “The Warren plan expends resources on student debtors from upper-income families, but it is still broadly progressive,” says Democratic economist Jared Bernstein in The Washington Post. “Analysis from experts at Brandeis University, the University of Tennessee, and Arizona State University shows that among low and moderate-income families — those in the bottom 40 percent of the income distribution — close to 90 percent of borrowing households would have their student debt wiped out compared to just under 30 percent of those in the top 10 percent. Similarly, the proposal provides total cancellation for about 90 percent of those with an associate degree or less but provides total cancellation for about only 25 percent of those with a professional degree or doctorate.”

And let’s not forget how we got here: “Today's rising student debt is largely a result of policy choices. The short version of the story is that student debt is rising because college tuition is rising — and college tuition is rising, in large part, because state legislatures across the country have slowly been abandoning their commitment to fund public colleges and universities,” says The Week’s Joel Mathis. “Today's young students aren't less responsible than their predecessors. They're just getting far less help.”

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