By Zach Gorwitz.
If you didn’t read my last column, the basic takeaway was a call for a larger budget solution that attacks the roots of these paralyzing crises rather than disaster-to-disaster management (you should still read my last column). There’s been much movement on the budget in spending in recent years. So much so, in fact, the deficit as a percentage of GDP has fallen four straight years. This is despite what some Congressmen may think. This progress is often pointed to by proponents of deficit spending as a sign that spending levels are fine where they are, if not too low! However, these numbers are misleading. When breaking down the budget by mandatory and discretionary spending, a distinction often overlooked, a need for real entitlement reform becomes apparent.
Congress appropriates two types of spending: mandatory and discretionary. Discretionary spending is what you’ll hear talked about most, and it is reviewed every year. This includes military spending (which was cut by the sequester), medical research (cut by sequester), justice spending (cut by sequester), etc. It does not include programs like social security and Medicare (exempt from the sequester). Social security and Medicare, part of mandatory spending, are not reviewed annually, but rather operate on a sort of autopilot, growing based on a pre-determined formula. Essentially no matter what the benefits claimed by Americans are, the United States has an obligation to pay them out. While discretionary spending may be getting pared down by the end of stimulus packages, a fiscally conservative congress, and sequestration, mandatory spending continues to grow and threatens our long-term fiscal stability. While Rep. Eric Cantor was wrong about the deficit currently growing, the Congressional Budget Office projects it to grow every year after 2015. This is mainly because mandatory spending is 64% of federal spending in 2014, and it rarely gets discussed. On the other hand, the National Priorities Project finds that tax breaks are nearly equivalent to all discretionary spending in FY 2014. When all the focus is on discretionary spending, mandatory spending is left unscathed, protecting political interests but damning economic ones. It’s no surprise we have a long-term budget problem.
How does Congress address runaway mandatory spending? There are numerous ways, but the two I propose deal with social security. As it stands in 2013, income up to $113,700 is taxed at 6.2% for employees. Essentially, if one makes $1,000,000 he/she only pays social security tax on the first $113,700 of it. This current system is a problem—the CBO projects current Social Security resources will be insufficient to pay full benefits in about 20 years. Congress should raise the maximum taxable earnings cap. The increase can be moderate at first (perhaps up to $250,000), and then be adjusted, as projections deem necessary. A Congressional Research Service writes, “CBO estimated that the maximum taxable limit would have had to been $186,000 in 2008, almost double the actual limit, so that 90% of covered earnings are taxable. They estimated that this policy could have increased payroll tax revenues by $503.4 billion over the 2010-2019 period. The Urban Institute reports that the Social Security Administration estimates the 2012 maximum taxable limit would have had to been $214,500 so that 90% of covered earnings were taxable.” This plan would undoubtedly extend the solvency of social security—a good thing for high-wage earners and low-wage earners alike. Yes, the wealthy would be paying a bit more in taxes, but it would ensure that the money already paid into the system is not lost because the current benefit payout system doesn’t adjust annually.
Another fix is an adjustment in the retirement age. Over Social Security’s history, the Normal Retirement Age (NRA) has been raised only once, although life expectancy has increased approximately 16 years (62 to 78). A hike in the NRA from 67 currently to my proposed 70 would be wise. The early retirement age (the age one is eligible to collect early benefits) should be raised from 62 to 64. In fact, Social Security’s retirement age is practically 70 anyway, as that is the age when benefits are the greatest. People are living longer and receiving more benefits, but there hasn’t been enough revenue to sustain this increase. This suggestion begins to solve for these problems. Yes, there is always the argument that a hike in the retirement disproportionally affects the poor. It’s true; the poor do not live as long as the wealthy. But many factors weigh into this outcome (beware of correlation NOT causation), and not enacting common-sense policy that saves a program that benefits ALL Americans for the reason that it would help one segment of the population less than others is unfair in itself. In fact, a moderate raise in the retirement age to increase SSA’s longevity is much more equitable than the initial age—an age that in the 1930’s most people would not live to see.
Iraq and Afghanistan, defense spending in the Middle East, and other discretionary outlays are often painted as the drivers of irresponsible spending, and sure, they have cost us a ton of money. However, a quick look at usdebtclock.org will reveal that spending on defense and wars is dwarfed by social security spending to the tune of $202 BILLION dollars. Slowly growing to unprecedented levels in the political background, social security has been endangered by our own timidity. Not in an effort to cut social security, but in an effort to save it, we must be brave enough to make necessary changes.
Democrats support some of this proposal, republicans support the other parts, but if you support keeping social security solvent and reducing long-term budget deficits, you should support all of it. Mandatory spending and entitlement programs have been the 3rd rail of American politics for too long—it’s time to de-electrify the rail and get the train back on track.