Let’s put aside for a moment a long list of national issues – crime, drugs, racism, electoral laws, epidemics, vaccinations, the climate and the perilous international situation – to focus on a truly critical issue beyond the scope of the evening news.
To set the stage: the federal government’s current debt to the public – before the net contributions to that debt from a pending infrastructure bill of $ 1 trillion and up to a pending spending bill of $ 3 500 billion dollars to be added to the national accounts – is 28.43 billion dollars. That’s 102 percent of the nation’s total gross domestic product, a level not seen since the last year of World War II. A nation with this level of debt is usually associated with budget failures like Argentina and Greece.
The Treasury pays nearly $ 1 billion a day in interest on this debt – at a time when the federal government is borrowing (yield on 10-year notes) at 1.33%. In a year, this rate is much more likely to be higher than lower. The interest component of the federal budget will increase accordingly, and it must be paid to preserve the nation’s credit.
Now let’s focus on two extremely important programs for 65 million elderly Americans and their survivors and dependents: Social Security and Medicare.
Last month, administrators of the Social Security system, including Medicare, released their annual report on the status of these programs. The directors are four cabinet members appointed by President Biden. Here is what they tell us:
The two combined social security funds (retirement and disability) will be exhausted in 2034. That is to say that all the reserves will have been paid, and the funds will only be able to pay what comes from social charges. At the current payroll tax rate, this will represent 78 percent of the benefits promised for that year.
The Medicare program is threatened by the increase in life expectancy and the constant increase in health care costs for the elderly. At the current tax rate (1.45% of wage and salary income, plus an Obamacare surtax of 0.9% on very high-income seniors), the Health Insurance Trust Fund (HI) will not be able to pay only 91% of expected claims in 2026, which decreases with each subsequent year.
Each proposed remedy is extremely controversial. For pension funds, freeze increases in the cost of living. Increase social contributions to 10% for employees and employers and to 20% for the self-employed. Pay general income – actually borrowed money – to cover annual deficits. Eliminate early retirement at 62 and raise the retirement age to 70. Tell the elderly that they will have to live on less.
Solutions for Medicare are even more controversial. Increase the payroll tax rate from 1.45% to 5%. Offer senior citizens a financial incentive not to resort to expensive medical care here and to seek treatment in low-cost countries (“medical tourism”). Ration care UK style, reducing services for the very old and unhealthy, and lengthening wait times until the death of some patients. Reduce reimbursements to providers, at the risk of having fewer providers willing to accept Medicare patients at reduced prices, offering them cheaper services and reducing the number of small clinics and hospitals, especially in minority areas and rural underserved.
Not only are politicians from both parties allergic to any discussion of this issue, but a large number of them – the Sanders-Biden Democrats – are hard at work to quickly escalate the Medicare problem.
Their current plan, in Sanders’ pending $ 3.5 trillion budget bill, would expand benefits to include dental, vision and hearing, and lower the age of eligibility for insurance. illness at age 60. If implemented this year, it would bring two years to the day of reduced Medicare benefits. closer, 2026 to 2024. The Sanders Bill would also create new federally funded fees, such as free tuition, national child care, and universal preschool, the spending of which would compete for billions of dollars. budget with all other spending programs.
Covering fund deficits through “general revenue” is no longer, if it ever was, a viable solution. “General revenue” means more borrowed money and / or more taxpayer money. The burden of new taxes to prevent the depletion of both funds would threaten to cripple the U.S. economy, already facing challenges from COVID, the growing dollar depreciation and fierce international competition.
What is my solution? This is an unprecedented titanic problem, and the only advice I can give is: don’t make it worse. Restoring the sustainability of failing social security and medicare will require extraordinarily courageous leadership that is not on the horizon.
Perhaps the roar of seniors receiving reduced pension benefits and restricted health care services will put those funds back on the path to fiscal sustainability. I hope to live to see it.
John McClaughry is Vice President of the Ethan Allen Institute (www.ethanallen.org). The opinions expressed by columnists do not necessarily reflect the opinions of Bennington Banner.