Democrats Snooker Younger Workers

A Social Security trustee blows the whistle on the system's failure.

The sacred cows of the Democratic Party -- Social Security and Medicare -- have unacknowledged blemishes so severe that they promise increasing unfairness to each younger generation of Americans. A Social Security-Medicare trustee explains how in a revealing scholarly paper. The revelation was published by the Hoover Institution Aug. 26.

Charles Blahous, a Hoover research fellow, is one of two public trustees for the Social Security and Medicare programs. A PhD from University of California at Berkeley and a graduate of Princeton, he has specialized in domestic economic policy, retirement security issues, and federal fiscal policy as well as demographic change and health care policy.

The latest (2011) report of the boards of trustees states that the “financial conditions” of the two huge programs “remain challenging.” Projected costs for both programs “are not sustainable under current scheduled financing,” the 2011 report says. But it doesn’t tell the whole story.

Trustee Blahous observes, “The national discussion on entitlement programs is dazed and confused.” Our two largest programs “are at the center of a vibrant national debate over our fiscal future.” No confusion exists for the muddle-headed House Minority Leader Nancy Pelosi. She has memorized well the continuing cry from the Left. As she has said repeatedly: “We are not going to balance the budget on the backs of America’s seniors, women and disabled.” Whatever that means.

Hair-brained columnist Froma Harrop says, “No one’s saying that Social Security can’t be slightly recalibrated to keep the program on a sound footing or that significant savings can’t be found in Medicare waste.” Oh, so simple.

But Blahous opens a bundle of truths to correct ideas and decisions that have been made “unnecessarily difficult by rampant confusion” about each program. One deceptive myth, he writes, is that we “only” have a healthcare financing problem, not a population aging or senior entitlement problem. Unlike many myths that arise from “public ignorance, this damaging myth gained currency” by being pushed by several “influential policy advocates.”

Everyone has long understood that the baby boomer generation would create huge financial challenges when they switched from taxpaying workers to Social Security and Medicare beneficiaries. Expenditures would soar. But as Bush left office and Obama entered, many Washington policy wonks “began to sing a different tune. Suddenly population aging wasn’t such a big deal...The entire fiscal shortfall was healthcare alone.” Proponents of this new line included leaders from Brookings Institution, the AARP, and the then-head of Obama’s Congressional Budget Office, Peter Orszag. CBO published a “controversial chart purporting to show” that health care “utterly dwarfed” population aging as the contributor to long-term fiscal imbalance.

This gave Obama the opportunity to claim, “Healthcare reform is entitlement reform.” This thinking took politicians off the hook for tough action on benefits and eligibility. Here was a rationale for doing what politicians love to do—expand benefits and damn the cost. Voila! ObamaCare.

While Social Security reform was downplayed, “its finances deteriorated” rapidly. National health care “erected still more barriers to fiscal consolidation. Social Security will still remain the more expensive of the two programs; it will actually grow more...” Population aging will remain a larger financial challenge even than health cost inflation “for decades to come.” What Balhous calls “terrible policy mistakes” have cost us valuable time and “population aging still remains" the driver of “unsustainable federal spending growth.”

Although seemingly sightless opponents of Social Security reform, with their media allies, assert wrongly that Social Security doesn’t add a penny to the deficit, “2011 Social Security tax income will fall short” and the program will “add $151 billion to the current federal deficit.” Social Security surpluses from 1984 through 2009 turned to a deficit in 2010 when baby boomer retirements were coupled with the recession. The deficit will grow “even more in the years ahead,” Balhous says.

This year, the Medicare trustees (of which Balhous is one) forecast the hospital insurance (HI) trust fund would be insolvent five years earlier than projected in the 2010 trustees report. The media deplored this. Medicare’s finances are dire. But that insolvency date is an incomplete measure of its finances, Balhous notes. Medicare provisions in ObamaCare would extend HI solvency from 2017 to 2029 (if ObamaCare is ruled constitutional). But other provisions of ObamaCare spent most of those savings on a new health entitlement, undoing much of the supposed improvement in the ability to pay. As with Social Security, Medicare’s insolvency can be manipulated by government accounting, Balhous explained. It can project solvency without enhancing government’s ability to finance Medicare by one cent.

Recently, it was “almost an article of faith on the American left” that trustees were exaggerating Social Security shortfalls with unduly conservative projections. “Social Security actuaries” shows in nearly all projections the most that insolvency would be delayed “would be only six years.” The notion that trustees were being too conservative is “nearly 180 degrees from reality.”

A falsehood leading to “great confusion” in Social Security reform is that the program’s projected solvency through 2036 means beneficiaries have pre-paid their benefits through that day. So, any benefit changes should be deferred, say the unknowing. Workers don’t pay in advance. Instead, “each generation’s Social Security payroll taxes pay for the benefits of the previous generation of beneficiaries." This is the intergenerational unfairness of Social Security. "As the ratio of workers to beneficiaries declines, each succeeding generation must pay a higher tax rate to get the same" relative benefit. In other words, younger generations are increasingly worse off as society ages.

If current benefit schedules are left in place, as Democrat leaders insist with the compassion of a mother protecting her child, those now entering the system will lose. They will be shorted at least 4 percent of their “lifetime wage income to Social Security, even if they get all benefits presently scheduled for through 2036, more than four-fifths of the funds to fund benefit checks will be derived from taxes coming in from younger workers.”

The left’s promotion of the idea that Social Security benefits have been pre-paid is dead wrong. It fosters total confusion and symbolizes public policy run amuck as younger workers will get swindled.