When it comes to politics, it’s easy to get caught up in the day-to-day distractions tossed out by players on both sides of the politic debates that keep Washington roiling. But it helps, at times, to take a breath and focus on the big picture issues that most politicians would just as soon ignore.
One such example centers on the future of Medicare and Social Security. First, a little history…for years, these two programs have actually helped reduce the overall size of our federal deficit, at least on paper. That’s because, in the 1980s, President Reagan and Congress effectively doubled the payroll tax that funds most of Social Security and Medicare, and that big tax increase raised far more revenue than these two programs needed to pay current benefits.
Those annual surpluses have accumulated in the Social Security and Medicare trust funds for decades, helping to offset what would have otherwise been more alarming annual budget deficits. In effect, this regressive payroll tax increase masked the true fiscal impact of the huge tax cuts for the well-to-do passed under Reagan and subsequent Republican presidents.
In the case of Social Security, the surplus in the trust fund is expected to reach its peak in 2020 at about $2.9 trillion, at which point the program will begin to draw down that surplus to pay out benefits to the growing number of Baby Boomers reaching retirement age. But, as most of you probably know, that surplus is a pile of IOU’s, not actual cash, so it will be up to the government’s general fund to pay all that money back to Social Security and Medicare beneficiaries. Most of that would have to come from income taxes for the most part, a type of tax that, not surprisingly, falls hardest on those with the most income. And that has been a looming concern for many of the folks who benefited when the big surpluses were helping to mask the impact of their tax cuts. Now, when the situation is reversed, they’re making the case for Social Security and Medicare “reform.”
How Washington chooses to address the issue will mark a watershed moment in American history.
There will be two sides on this issue, one that will advocate for significant benefit reductions for seniors, and the other that will seek a more equitable source of funding for these programs to secure their long-term viability.
We know that Republicans will be on the side of benefit cuts. What remains to be seen is whether Democrats will be willing to sell out seniors, as well, to benefit those at the top.
With the Republicans now in charge in Washington, the push for benefit cuts is being queued up right on schedule, in the form of tax cuts for the wealthy, and the inevitable large deficits those cuts will create. The budget outline the Republicans approved last week authorizes steadily increasing budget deficits for the next ten years.
The GOP measure calls for a federal deficit of $582 billion this year, with annual deficits growing to over $1 trillion by 2026. The total national debt will increase from $20 trillion to just under $30 trillion under the Republican plan.
And the Republican plan includes no additional spending for the huge infrastructure program touted by candidate and now president-elect Donald Trump, and projects anti-terrorism spending will drop to zero within just a few years. It includes no appropriations for natural disasters or other unexpected events— those will all be handled through emergency appropriations. In other words, the real deficits are likely to be far worse than outlined in the GOP spending plan.
And that’s exactly what the Republicans are banking on. By running up deficits, you can hear House Speaker Paul Ryan already… “the government is broke, folks. It’s time to tighten our belts.”
Then will come the inevitable calls for “sacrifice,” which means sacrifice for average folks, not for the millionaires and billionaires, who will still enjoy their tax cuts. It will mean benefit cuts for Social Security and Medicare in the Republican playbook, all to help repair the nation’s “crumbling finances”. How big might those cuts be? Well, consider that as of 2034 (just 17 years from now), when the Social Security trust fund is fully depleted, ongoing payroll taxes are expected to fund just 77 percent of anticipated benefits. Now ask yourself how the millions of seniors dependent almost entirely on Social Security would fare with a 23-percent cut in benefits.
Now here’s the flip side. We know that with a more equitable funding system, both Social Security and Medicare can be made financially viable indefinitely. In fact, a more equitable funding mechanism would enable expansion of Social Security benefits. That’s something Bernie Sanders strongly advocated for during the last presidential campaign.
The fact is, America isn’t broke. Not even close. The federal government is struggling financially because the wealthy now have so much power in Washington that they’ve managed to win loophole after loophole that allows them to avoid paying anything close to the tax rates they used to pay. Just ask Donald Trump, the loophole king.
Back under that old socialist president Dwight D. Eisenhower, the top marginal tax rate for the wealthy was 92 percent, and corporations paid fully one-third of all federal taxes. These revenues allowed the government to invest in America like never before. We built the interstate highway system and modern airports. We built schools to educate the baby boom and sent an entire generation to college for the first time through the GI Bill. We invested in rural electrification, wastewater treatment facilities, affordable housing, high-tech research and development, and space exploration. And our economy boomed as a result.
Today, the top marginal tax rate is 39.6 percent on regular income and just 25 percent on capital gains. And corporations contribute just ten percent of federal revenues, even at a time of record-breaking profits.
Meanwhile, the infrastructure we built half a century ago is crumbling and we can’t afford to pay the maintenance costs, much less the cost of replacement.
And yet, the top priority for Republicans is slashing tax rates for the wealthiest Americans and for corporations. What’s wrong with this picture?
The question we all need to pose to Washington is: which side are you on? Are you on the side of a relative handful of insanely wealthy families and individuals? And will you back disastrous cuts in Social Security and Medicare benefits in order to fund more tax breaks for those who already have so much? Or are you going to side with average retirees and Baby Boomers poised to retire, by restoring more sensible tax rates that will enable tens of millions of seniors a modicum of comfort in retirement?
Behind all the circus in Washington, this is the fundamental question that our political leaders will answer, one way or another, over the next several years. We should all be paying attention, and vote accordingly.