Increased Taxes on Social Security and Medicare: The New Normal?

I’m never quite sure what the “new normal” means. But it’s one of those phrases buzzing around the Beltway these days. Unemployment at nine percent: new normal. Congressional gridlock: new normal. Means testing on Social Security and Medicare: new normal.

Whoa, big guy. Back up a little. Means testing — another buzz phrase making the rounds as the Prez and congressional leaders grapple over a plan to reduce federal spending and the deficit. Means testing — I believe that means reduce Social Security and Medicare benefits for recipients based on some still-to-be-determined income level.

Hey, isn’t that a tax?

We’ll see because this is where the conservatives are going to end up. Prez O and the liberals want revenue enhancements along with spending cuts. The conservatives in Congress, many whose jobs depend on the outcome, say “read my lips. No new taxes.”

Ah, means testing — the new normal?

Here’s from USNews and World Report written by one of the head sleds at AARP, “Don’t Means Test Social Security“:

Imposing a means test could destroy the most successful social program in our country’s history. Social Security does need moderate changes to restore its long-term fiscal health. The sooner we make those changes, the more modest they can be. But Social Security does not need a change that would alter its fundamental character, create incentives against saving for retirement, and undermine its popular support. A means test would do just that.

Click here to find out more!

Social Security’s enduring popularity reflects the insurance nature of the program: Recipients have an earned right to their retirement benefits. Everyone who pays into the program is entitled to benefits. If you work long enough in covered employment, you qualify, no matter where you stand on the income ladder. Almost everyone with a job has a personal stake in keeping the program strong. And let’s not forget the matter of fairness. Everyone who contributes through the payroll tax—including the affluent—deserves a fair return on his or her contributions. This expectation is not an exaggerated sense of entitlement. It’s reasonable.

The notion that the benefits are an earned right separates Social Security from means-tested income-support programs. Social Security can help everyone. Means testing is a feature of taxpayer-funded welfare programs designed to help the poor. A means test would inevitably erode the universal and contributory nature of Social Security and some of the popular support that has sustained it for nearly 75 years.

We also should remember that Social Security already makes distinctions based on income. Lower-wage earners get a higher return on their contributions. Higher-income retirees pay income tax on a portion of their benefits. Given these progressive features, it’s not logical to add a means test. In fact, Social Security is far more progressive than any other retirement program.

Preserving the traditional character of Social Security is also good for democracy. It is a popular and inclusive part of the American social contract at a time when the economic gulf between haves and have-nots is growing wider.

Here’s from the NYT, “Democrats Oppose Talk of Cuts to Social Security“:

Congressional Democrats, who have thrived for decades as guardians of Social Security, said Thursday that they were not ready to surrender that role to help President Obama get a deal on federal spending and the debt limit.

As word spread that Mr. Obama was considering large savings from the use of a different measure of inflation to reduce the annual cost-of-living adjustment in Social Security benefits, Democrats joined with lobbyists for older Americans to reject the idea. Representative Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee, said Democrats would oppose changes in Social Security benefits as part of the deficit-reduction talks.

“Any discussion of Social Security should be on a separate track,” he said. Representative Nancy Pelosi of California, the House Democratic leader, said, “Any savings should be plowed back into making Social Security stronger.”

Representative Sander M. Levin of Michigan, the top Democrat on the Ways and Means Committee, said, “The proposal would place new burdens on the backs of seniors.”

Representative Xavier Becerra of California, a member of the House Democratic leadership, said, “The cuts in Social Security benefits would grow larger as retirees age, and seniors who rely most on Social Security to pay for basic necessities would receive the biggest benefit cuts.”

On the Senate floor, Senator Sheldon Whitehouse, Democrat of Rhode Island, said Thursday: “Social Security and Medicare benefits should not be on the table. Social Security is not the cause of the deficit, and beneficiaries should not be made to shoulder the burden of deficit reduction.”

In particular, Mr. Whitehouse said, Congress must not “cut benefits through backdoor methods such as lowering the cost-of-living adjustment.”

Republicans are concerned about the growth of entitlement programs, including Social Security and Medicare. Some, like Senator Tom Coburn of Oklahoma, support the idea of an alternative measure of inflation, known as the chain-weighted version of the Consumer Price Index, because they believe it is more accurate. But the party, waiting to see details, has not taken an official stand.

Lobbyists for older Americans were blistering in their criticism of the proposal, which, according to the Congressional Budget Office, could reduce federal spending by more than $110 billion over 10 years.

“This is nothing more than a backdoor benefit cut that Washington hopes Americans won’t notice or understand,” said Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare.

He said Social Security beneficiaries did not receive a cost-of-living adjustment this year or in 2010 because inflation, as measured by the standard Consumer Price Index, was so low.

AARP, the lobby for older Americans, said last month that it might be open to modest reductions in Social Security benefits for future recipients. But A. Barry Rand, the group’s chief executive, tried to quash the inflation adjustment idea, saying that “AARP will not accept any cuts of any kind to Social Security as part of a deal” to reduce the deficit and increase the debt limit.

The proposal under discussion would affect current and future beneficiaries. Any move to exempt current beneficiaries would reduce the amount of savings.

IMO Social Security is one of the few federal government programs that actually work. And with some modest adjustments, there is no reason why it can’t provide at least some foundation for retirement income for millions of Americans forever.

With Social Security, as with a host of other government programs, it will be interesting to see what happens in the next few weeks as our elected representatives Inside the Beltway try to define the new normal.

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One response to “Increased Taxes on Social Security and Medicare: The New Normal?

  1. Pingback: Video Of The Week — The Hollies’ 1969 Song, “He An’t Heavy, He’s My Brother” « Becoming is Superior to Being

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