Wednesday, March 30, 2011

Social Security and Medicare: Deficit Myths Information Bulletin # 328 (3/2011)

by Steve Gold

Challenging Social Security and Medicare's fiscal soundness has been a regular activity of conservatives in this country since the 1950s. The current attack is a virtual replay of 1983, with a few new twists. Each time they attack, the unstated but likely intentional consequences are to instill fear in older and disabled Americans, and people who will be retiring in the future. Advocates for Older and Disabled Americans must take the offense and fight back.

One of the new twists is to repeat the mantra that Social Security and Medicare are "Entitlements." This short-hand label suggests the programs are simply government largesse, "welfare," and charity. In our current climate, such branding supports reducing or even eliminating these programs.

But neither Social Security retirement/disability nor Medicare is an "Entitlement." Both were enacted as insurance programs. Payments come out of our wages pursuant to the Federal Insurance Contributions Act's FICA, and are deposited in four separate trust funds: Old-Age and Survivors Insurance; Disability Insurance; Hospital Insurance (Part A of Medicare); and Supplementary Medical Insurance (Part B).

Throughout out working lives, we pay insurance payments or "premiums" (a percent of our earnings) into these government sponsored insurance trust funds so that when we no longer have earnings, due to retirement or disability, we will receive these insurance benefits - the same way any private insurance program is supposed to work.

Folks, let's wake up. It's our insurance benefits on the chopping block; it's our money. Don't buy into the politico-hysterical rhetoric.

A second twist alleges that these programs are in deep financial trouble and are the cause of our national deficits. One of the biggest difficulties we face is to know which "facts" are accurate and which are thrown out to frighten us.

The 2010 actuarial annual report of the Trustees' of Social Security and Medicare shows assets of $2,540.3 billion in Social Security and $380.8 billion in Medicare, Part A and B. The Trustees report that "the outlook for Medicare has improved substantially." Part A "is now expected to remain solvent until 2029, 12 years longer than was projected last year." Part B's program costs are "down 23 percent relative to costs projected" earlier.

Due to the current deep recession, the Trustees point out that short-term outlook for Social Security is not good. Social Security expenditures will exceed receipts this year for the first time since 1983. Even so, the Trustees expect the deficits to "shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy."

What if the economy does not improve as much as the Trustees assume? Rather than unsupported fear mongering, advocates must initiate a public discussion regarding how we might address this problem.

Easy and relatively painless remedies exist to address future Social Security concerns. For example, presently we pay Medicare payroll taxes (1.4%) on our total earnings, but Social Security payroll taxes are do not apply to earnings above $108,800.

Why should earnings above $108,800 not be subject to Social Security payments? Why should people who earn less pay on their entire earnings but people who earn more do not? Raising the Social Security's taxable amount of earnings to include all of our earnings the same as Medicare does will have no impact on the rate withheld, presently 6.5%, but will ensure that we all pay our fair share.

A variant of this proposal came from The National Commission on Fiscal Responsibility and Reform in December 2010 which recommended we pay different Social Security payment rates on all of our income depending on the earnings. The Commission estimated their recommended changes would close nearly half of any shortfalls over the next 75 years.

An honest public discourse without rhetoric and myths might lead to proposals that really address how to continue and improve these programs. In 1983, President Reagan appointed Alan Greenspan to head a commission which proposed numerous changes that resulted in nearly 30 years of security. Hmmm. Reagan and Greenspan????

Steve Gold, The Disability Odyssey continues

Back issues of other Information Bulletins are available online at with a searchable Archive at this site divided into different subjects.

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To contact Steve Gold directly, write to or call 215-627-7100.
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