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Letter to Rep. Brooks on Means-Testing Medicare Recipients Print
Written by Dean Baker   
Wednesday, 03 April 2013 09:20

The following is a letter that was sent to Rep. Susan Brooks' office and newspapers in her home state of Indiana.

To the Editor,

In a recent talk to Tipton, IN, residents about “entitlement” reform, Rep. Susan Brooks suggested “needs-testing” Medicare to ensure that the wealthy are not receiving benefits. She went on to say “When it was created, they didn’t expect people to depend on the program for their medical care… There are not enough young people paying into the program.”

Assuming that Rep. Brooks meant means-testing instead of “needs-testing,” she might want to clarify whom she means by the wealthy. Fewer than 6 percent of seniors have over $60,000 in non-Social Security income. Removing them from the pool of Medicare beneficiaries would have little effect on the program’s long-term cost projections. To significantly curb expenses under needs-testing, benefits would have to be cut for people who have much less income – in fact, as little as $40,000 per year.  

As it stands, the cost controls put into place by the Affordable Care Act allow the Medicare trust funds to pay full benefits through 2024 and close to full benefits from then on. As well, the latest data from the non-partisan Congressional Budget Office show that the rate of Medicare cost growth has slowed sharply in recent years. If the cost growth continues at the current rate, most of the projected long-term budget deficits disappear. In other words, there is little point in cutting the much-needed benefits of those making less than $60,000 in the name of deficit reduction that is already happening.

Also, when Medicare was created by Congress in 1965, they knew the baby boomers would eventually retire and depend upon these programs. As President Johnson stated, “And through this new law… every citizen will be able, in his productive years when he is earning, to insure himself against the ravages of illness in his old age.”  They also anticipated the increase in life expectancy we have seen since then. Neither of these factors has impacted the program in ways that were not planned for. 

I encourage Rep. Brooks to accurately describe the nature of the benefit cuts she is proposing and the people who will be affected. Simply offering unspecified cuts in the name of deficit reduction does a disservice to her constituents, many of whom depend on these vital social insurance programs in their retirement.

Sincerely,

Dean Baker
Co-Director
Center for Economic and Policy Research

 
The Demographic Horror Story and Other Children’s Tales Print
Written by Dean Baker   
Friday, 29 March 2013 10:20

The Very Serious People in Washington have been running around arguing that the country should be very worried about the aging of the population. The story is that we face an enormous crisis because the ratio of workers to retirees is projected to fall from 2.8 to 1 in 2013 to just 2.0 to 1 over the next two decades. This declining ratio is supposed to mean that our children will face an enormous burden in supporting a rapidly growing population of retirees.

While this projection produces much hand wringing and head nodding among the Very Serious People (VSP), fans of arithmetic know that it provides little basis for concern. The reason for the lack of concern is often given by the VSPs themselves. When pushing the scare story they often throw in the tidbit that the ratio of workers to retirees used to be 5 to 1 back in the 1960s.

Of course the country is far richer on average today than it was in the 1960s even though we have much lower ratio of workers to retirees. The secret is productivity growth. Output per worker hour is more than twice as much in 2013 as it was in the 1960s. As a result, we can both have a larger share of output diverted to supporting retirees and have higher living standards for both workers and retirees.

The same story holds going forward. In 20 years average output per worker is conservatively estimated to be more than 40 percent higher than it is today. This means that even if workers were to see an increase in their payroll tax of 2 or 3 percentage points (almost certainly more than would actually be the case – we can also raise the cap on taxable wages) they would still have much higher after-tax wages in 2033 than they do today.

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Letter to Sen. Hatch on the Sustainability of Entitlement Programs Print
Written by Dean Baker   
Friday, 22 March 2013 14:00

The following is a letter that was sent to newspapers in Sen. Orrin Hatch's home state of Utah.

To the Editor,

Earlier this week, Sen. Orrin Hatch (R-Utah) addressed the Senate on its latest budget proposal. On the topic of social insurance programs, Sen. Hatch said:

Put simply, this budget ignores our unsustainable entitlement spending and allows it to continue on a path that will bankrupt these programs.”

Sen. Hatch went on to say:

This isn't new information. It isn't privileged or classified. Anyone paying attention to our nation's fiscal situation is aware that these challenges exist.”

It is true that information on the finances of these problems is freely available. And the Senator’s constituents might like to know that by all indications, these programs are actually not on a path to bankruptcy. The projections of both the Social Security Trustees and the nonpartisan Congressional Budget Office show that Social Security will continue to be able to pay full benefits for the next 20 years and more than 75 percent of benefits from then on.

In terms of Medicare, projections show that the Affordable Care Act put into place cost controls that allow the program to pay full benefits through the year 2024 and the vast majority of benefits for the foreseeable future. And if Medicare cost growth continues at the same rate as we've seen over the past five years, Medicare will essentially flatline as a portion of our budget, and most of the projected long-term budget deficits will fall away.

In other words, even if Congress does nothing at all right now, these programs will continue to exist for future generations. The remaining shortfall in the Medicare programs relative to the size of the economy is roughly one-third the size of the increase in defense spending associated with the wars In Iraq and Afghanistan.

As a member of the Senate Finance Committee and the Subcommittee on Social Security, Pensions and Family Policy, it is crucial that Senator Hatch accurately describes the finances of these programs. Anything less endangers and weakens programs that are vital to the retirement security of retirees around the nation.

Sincerely,
Dean Baker,
Co-Director, Center for Economic and Policy Research

 
Letter to Sen. Portman: 'Entitlement Reform' Means Cuts to Social Security, Medicare Benefits Print
Written by Dean Baker   
Wednesday, 20 February 2013 14:51

The Honorable Robert Portman
338 Russell Senate Office Building
Washington DC, 20510-3506

Dear Senator Portman and Staff:

In an interview about President Obama's State of the Union address, you stated, "I was most encouraged about what he said about entitlement reform and tax reform... [because e]ntitlement programs, as important as they are, are not sustainable in their current form."

With all due respect, the non-partisan Congressional Budget Office projects that even if Congress makes no changes to the program at all, Social Security can pay full scheduled benefits through the year 2034 and over three-quarters of scheduled benefits for the rest of the century. The shortfall that remains is equivalent to only about 0.6 percent of our GDP, which could be easily made up with common-sense solutions, such as applying the Social Security payroll tax to income above $113,700.

Medicare is projected to be able to pay full benefits through the year 2024 and the long-term projected shortfall has decreased by more than two-thirds, due to cost controls put in place by the Affordable Care Act. In addition, the latest projections of Medicare spending from 2011 to 2020 have dropped by $500 billion. The main reason for Medicare's long-term deficits is that we pay twice as much per person for health care as in other developed nations, without better health outcomes to show for it. In fact, if we could get our health care costs down to their levels, for example by allowing the government to negotiate Medicare prescription drug prices, then we'd be looking at budget surpluses, not deficits, in the future.

In contrast, "entitlement reform" plans would cut Social Security and Medicare benefits by large amounts, undermining the security of American retirees. For example, the "chained CPI" that has been proposed for Social Security and other inflation-adjusted programs, including federal income tax brackets, would effectively be a painful benefit cut as well as a tax increase for most Americans.

As you continue to deliberate over Social Security and Medicare, I hope you and your staff will have the opportunity to further review the design and finances of the programs. If you would like any additional background, I would be happy to assist you.

Sincerely,
Dean Baker
Co-Director, Center for Economic and Policy Research

 
Letter to Rep. Noem on Social Security and Deficits Print
Written by Dean Baker   
Tuesday, 05 February 2013 09:30

The Honorable Kristi Noem
1323 Longworth House Office Building
Washington DC, 20515

Dear Rep. Noem,

In answer to a recent question on Social Security and the national debt, you stated:

“Social Security is running at a deficit today…We’re having to make up that deficit out of the national treasury. That’s why we have to shore it up.”

By law, however, Social Security can only spend money from its designated payroll tax or interest on the bonds in its trust fund. Therefore, it cannot contribute to budget deficits or the national debt. Currently it is spending interest from the government bonds it owns, in addition to its designated payroll tax receipts. It makes no more sense to say that this spending from interest contributes to the deficit than if you or I were to spend interest on government bonds that we owned. 

Since by law, Social Security is financed by its own revenue stream, it seems peculiar that you would bring it up in the context of the national debt and deficits. Your constituents might be interested in knowing why you discuss Social Security in this fashion.

While Social Security is projected to face longer term-shortfalls, I assume you are aware that both the non-partisan Congressional Budget Office (CBO) and the Social Security Trustees Report show that Social Security will be able to pay full benefits into the 2030s and over 75 percent of benefits thereafter if no changes at all are made to the program.

If you are interested in ways to tackle the long-term solvency of Social Security I would be happy to discuss this with you. I hope you are more careful in the future when discussing Social Security, deficits and the national debt.

Sincerely,
Dean Baker, Co-Director, Center for Economic and Policy Research

 
Letter to Sen. Corker on Medicare Means Testing Print
Written by Dean Baker   
Friday, 11 January 2013 16:25

The Honorable Robert Corker
185 Dirksen Senate Office Building
Washington DC, 20515

Dear Senator Corker,

You recently introduced a new bill aimed at deficit reduction, in part taking aim at ‘entitlement reform’. On the subject of Medicare, you stated:

“Medicare means-testing would allow Medicare payments to be reduced for people who can afford to pay for their own healthcare.”

I’m curious as to the income levels where you would consider people to be so wealthy that they do not need Medicare or at least should receive less assistance from the government in paying for it? As you know, Congress just had a serious debate on this issue with President Obama on taxes and decided that $400,000 was the appropriate cutoff for who is considered wealthy. If Congress were to set a comparable income level as a cutoff for Medicare, the savings will be too small to even be noticed in budget projections. Even if the cutoff for a means test was set at half this level, or $200,000, it would only affect 1 percent of beneficiaries, and therefore could at least lead to a reduction of Medicare costs of 1 percent in the extreme case that people at this income level were thrown off Medicare completely. In order to raise any substantial amount of money through a means test of Medicare you would have to set the cutoff for some reduction in benefits in the $50,000-$60,000 income range.  

I would be happy to work through calculations of potential savings from means-testing with you if that would be helpful. In any case, I hope that you clarify your plans for means-testing Medicare. I suspect that people in Tennessee and around the country would be very interested.

Sincerely,
Dean Baker, Co-Director, Center for Economic and Policy Research

 
Letter to Sen. Toomey on Threat to Force Government Default Unless Entitlements are Cut Print
Written by Dean Baker   
Thursday, 10 January 2013 10:45

The Honorable Pat Toomey
502 Hart Senate Office Building
Washington DC, 20510


Dear Senator Toomey,

In a recent interview on MSNBC, you said

“We Republicans need to be willing to tolerate a temporary, partial government shutdown which is what that could mean. And we have to get off the road to Greece, because that is a road that we’re on right now. We can only solve this problem by getting spending under control and restructuring the entitlement programs. This president doesn’t want to go there. We have to force it, and we’re going to have to force it over the debt ceiling.”

This appears to be a rather strong statement, which I would like to make sure that I am not misunderstanding. Are you saying that it is the intent of you and your fellow Republicans to force the government to default on its debt unless the president agrees to cut Social Security and Medicare, which together account for the vast majority of entitlements?

My guess is that threatening default of the debt as a way to force cuts to Social Security and Medicare is not popular with the country as a whole or your constituents in Pennsylvania, but of course that is your prerogative as an elected official. It would be helpful to everyone if you could clarify your position on this issue.

Sincerely,
Dean Baker, Co-Director, Center for Economic and Policy Research

 
Letter to Rep. Rooney on Social Security, Medicare Reform Comment Print
Written by Dean Baker   
Wednesday, 12 December 2012 11:30

The Honorable Thomas J. Rooney
1529 Longworth House Office Building
Washington, D.C. 20515

Dear Representative Rooney:

Last week, the Washington Post reported that you stated, “If there are truly real entitlement reforms that are going to preserve Social Security and Medicare for generations to come, it’s going to be very difficult for me to oppose” higher tax rates for the rich.

With all due respect, the Congressional Budget Office projects that even if Congress makes no changes to the program at all, Social Security can pay full scheduled benefits through the year 2034 and close to 80 percent of scheduled benefits for the rest of the century. 

In the case of Medicare, the program is projected to be able to pay full benefits through the year 2024. The cost controls put in place by the Affordable Care Act pushed this date eight years further into the future, from 2016, and reduced the long-term projected shortfall by more than two-thirds. 

In contrast, most recently proposed "entitlement reform" plans would cut Social Security and Medicare benefits by comparable, or even larger, amounts.  Considering these facts, I find it difficult to ascertain what the word "preserve" means in this context. 

As you continue to deliberate over Social Security and Medicare, I hope you and your staff will have the opportunity to further review the design and finances of the programs. If you would like any additional background, I would be happy to assist you.

Sincerely,

Dean Baker
Co-Director, Center for Economic and Policy Research

 
Letter to Sen. Toomey on Misleading Statements About Social Security Print
Written by Dean Baker   
Thursday, 26 July 2012 14:30

The Honorable Pat Toomey
502 Hart Senate Office Building
Washington, D.C. 20510

Dear Senator Toomey:

I read through the talk on the budget that you gave at the Brookings Institution this week. The talk included several comments on Social Security that were at least misleading, if not actually wrong.

First, on page five of the transcript you lumped Social Security in with Medicare and other health care programs and said that collectively they are unsustainable. This is misleading for several reasons.

Most importantly, the cost of Social Security is projected to rise much less rapidly than the costs of health care programs. And, after the mid-2030s, Social Security’s costs are projected to remain virtually constant as a share of GDP through the rest of the century. There is nothing about these projections that imply this will be an unsustainable burden.

Furthermore, because of the way in which Social Security is financed, under the law it cannot contribute to the deficit. The Congressional Budget Office’s (CBO) most recent projections show that the program will be fully funded from its dedicated stream of tax revenues through 2038, with no changes whatsoever. (The Social Security Trustees project 2033 as the date of trust fund exhaustion.)

This means that for the next quarter-century, CBO projects that Social Security will be fully funded from its designated tax and the interest and principal from the bonds bought with surplus revenue from this tax. If we reach 2038 and the fund is depleted as projected, then under the law Social Security would not be able to pay full benefits. (The payable benefit would be about 80 percent of the scheduled benefit, which would still be considerably higher than what current retirees receive.) Social Security would not be able to make payments in excess of the money coming into the system, and thereby add to the deficit, unless Congress were to vote to change the law and allow Social Security to spend from general revenue.

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Guide to Social Security Shows Program is Not Just for the Elderly Print
Written by CEPR   
Thursday, 12 July 2012 13:00

A new revised edition of "The Young Person's Guide to Social Security" by the Economic Policy Institute and National Academy of Social Insurance includes the latest official estimates in the 2012 Social Security Trustees’ report to give young adults the information needed to participate in debates about the program's future.

“Social Security is the best deal most young people don’t even know they have,” said Kathryn Anne Edwards, one of the paper's authors. "It is insurance that is not only effective and important, but irreplaceable. Young people need to get the message that it’s not somebody else’s security, it’s your security. It’s not your grandparents’ program, or your parents’ program, it’s your program. And it’s yours to lose.”

The printed edition is free and available through NASI.  The publication is also available online in a downloadable format and available through EPI or NASI. For even more on Social Security, visit our Social Security and Retirement page.

 
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