Why Cut Social Security and Medicare? Here’s Why.

Every election cycle, Democrats claims that Republicans would savagely cut or even end Social Security and Medicare. Today is no different. Yet Republicans continue to be elected, often controlling Congress or the White House. And not only are these programs not ended, but Republicans these days don’t attempt even to reform them. Yet reductions to the growth of future entitlement benefits, in particular for better-off Americans, should be on the table. And Congress should discuss benefit reductions like adults facing difficult choices, not children in a cafeteria food fight.

Last year Social Security cost $1.2 trillion while Medicare cost $726 billion, totaling 36% of the non-interest federal budget. The Congressional Budget Office projects that by 2050, combined spending will double to $4.7 trillion in today’s dollars, topping 53% of non-interest federal spending. Unless we increase federal taxes by about 56% by 2050 or cut every other federal program by 24%, rising entitlement benefits need to be curtailed. No one is arguing that Social Security and Medicare in the future should pay out less than they do today. What people do disagree about is how fast these programs should grow.

I think the growth of Social Security and Medicare should be slowed, for a simple reason: government has important jobs other than taking money from young people and giving it to old people. Americans want a national defense; roads and bridges and airports; better health coverage; security against terrorism; schools and college tuition; and countless other things that the federal government does. But the federal government’s ability to take on these tasks will be severely limited if we don’t think hard about how to slow the growth of entitlement benefits for seniors, in particular well-off seniors.

Some people say that Social Security doesn’t contribute to the budget deficit and so there’s no reason to cut it. Not so. The Congressional Budget Office explicitly states that Social Security’s “contribution to the federal deficit” last year was nearly $100 billion, while Medicare added almost $400 billion more. Going forward, the federal budget is balanced if you leave out Social Security and Medicare. But if we don’t resolve the Social Security and Medicare funding problems, our debt will grow to unsustainable levels. Having spent six years on the financial oversight board managing Puerto Rico’s bankruptcy, I can tell you – and the people of Puerto Rico can tell you even better – that a financial crisis is a terrible thing to live through.

Some people say that Social Security and Medicare are self-financing – we paid our taxes and we’re only getting back what we paid. Again, not true. The Social Security Administration calculates that a typical couple retiring today will receive about 30% more in benefits than they paid in taxes. By the end of the decade, that rises to a 50% bonus. And those bonus benefits don’t come out of thin air; they come from additional taxes that their kids will have to pay. For Medicare, the bonus to current retirees – and the cost passed to our kids – is even more extreme.

Others say that we can’t possibly cut Social Security because it’s an essential safety net. In fact, members of both parties have proposed increasing benefits for low-income retirees. But entitlements aren’t expensive because they’re a safety net; they’re expensive because they’re not. For instance, this year Social Security’s maximum benefit will be $42,000, far more than is needed to avoid poverty. By 2050 that maximum benefit is scheduled to rise to $59,000. But when I recently proposed capping that maximum benefit, even many ostensibly conservative people acted as if providing generous benefits to rich retirees is somehow an essential role of government. If that’s what they think, they’d better start figuring out how they’re going to pay for it.

Everyone needs to start acting like adults. Being a good steward of entitlements isn’t accusing the other party of wanting to make benefit cuts that party neither wants nor has the capacity to make. Nor is it insisting you won’t cut benefits while also claiming you won’t raise taxes. Leaders take on the problems they are charged with solving, being upfront about the costs and benefits of each option while not forgetting that inaction isn’t one of them.

Now we just need to find some leaders.