How quickly old age creeps up upon the unwary as any over the hill gramp will tell you. Young whippersnappers think that youth will last forever but the times move faster than they can ever imagine and before they know it, those glory days will seem like just yesterday.
And so the poster boy of the Republican party, a representative of the youth of America (it appears that neither he nor his Grand Old Party have yet realized he’s already crossed middle age) U.S. Representative Paul Ryan is putting together a new budget more draconian than the last one and calling for cuts on elderly benefits.
And he is getting support not only from Republicans. Democrats including President Obama are also considering putting those elderly benefits on the table.
When it comes to elderly benefits, politicians, who make incomes overwhelmingly in the six figures, have little to worry about upon their retirements – especially with their hefty government pensions.
But fifty years ago it was a different scenario. It was a time when the news had horror stories of elderly couples who worked hard and sacrificed for their children only to find themselves placed in situations where their families were stuck with their exploding health costs and insurance denials.
We could laugh about it now, health costs were nothing like they are today, but this was a major crises of that time. Congress and President Lyndon B. Johnson worked together and formed the Medicare and Medicaid programs and amended them into the Social Security Act on July 30, 1965.
This was a no brainer. The view then was that the elderly built America through their hard work and sacrifices so America should give back. So it is a bit ironic that Ryan’s fellow Wyoming, House Representative Cynthia Lummis stated that “The American people are ready to sacrifice to save this country, and it is time for us to let the American people sacrifice to save this country…” Yes, she is talking about the poor and the elderly.
So Paul Ryan is on an angelic mission to save the country with a budget that will outdo his previous one that called for a $716 billion cut in Medicare. And the elderly are now being labeled as “takers,” “dependents,” and “people who need to sacrifice.”
Yet, we may not even have to wait for the new Ryan budget for the war on elderly benefits to take center stage. On March 1st, there will be an automatic sequestration that will cut government spending by $85 million across the board which the Republicans hope to dangle in the face of Democrat opposition to force the issue of Medicare cuts. Nothing can stop the sequester from happening as the Republicans and Democrats are far from agreeing on a budget (which appears to be not of high interest for Republicans to rush.)
Medicare has become a hotbed issue because of what is called a generational imbalance. It is now getting more and more costly for the government to pay for Medicare costs with the tax burden shifting increasingly onto future generations. At this rate, taxes will increase to a monstrous 73% for people born in the year 2026.
Ryan and the Republicans are hoping to play upon an innate selfishness in the younger and middle age generations to “pull the plug” on the elderly so that the elderly may sacrifice to save a heavy tax cost from falling on their decedents. In other words, the old must sacrifice for the young contributing members of society and stop living off of other people’s hard work.
The problem with this frame is that the generational imbalance was actually postulated in an economic paper back in 1991 by Kotlikoff, Aurbach, and Gokhale long before Medicare was ever a problem. It was this paper that had explained the structure of elderly benefits in what is called the Generational Accounts Calculation:
Future Spending = Current Tax Revenue + Future Tax Revenue
This paper had argued that if cuts were made on Current Tax Revenue, the deficit would have to be made up on future tax revenue to keep programs such as Medicare and Social Security afloat. In other words, the taxes that are not collected today for Future Spending will exponentially increase the Future Tax Revenue that will be needed in the future. And this would cause a generational imbalance.
Therefore, the solution would be to increase the current taxes to make up for the deficit and insure that future spending is possible. The longer this current revenue is delayed, the larger the generational imbalance will get and the greater the tax adjustment will be needed in the future.
As if this paper was being used like a recipe, a generational imbalance was initiated in 2001 with the Bush tax cuts, the first major tax cuts to finally make a dent on the Generational Account Calculation. It put Medicare on the road to bankruptcy. This was followed by the tax cuts of 2003 and then the tax cuts of 2010.
To save Medicare, there would either have to be a 10% increase in tax revenue now or a 73% increase for people born in 2026. This could be accomplished now by increasing taxes on the rich and /or cutting defense spending and transfering towards Medicare. The only problem is, no one on Capitol Hill is talking about increasing any tax revenue for Medicare now.
Instead, Washington politicians are looking for other solutions such as actually cutting future spending on Medicare. This would be a major stepping stone towards eventually privatizing Medicare into a voucher system controlled by private companies that would help the elderly according to their financial ability to pay insurance premiums. This would also be a doorway to privatizing Social Security and getting rid of Medicaid. With more than 75 percent of the American population making less than $50,000 a year and at least 45 percent making less than $25,000 a year, this means many people are going to find themselves left in substandard and barely surviving modes of existence upon retirement.
Meanwhile business leaders showed how far off base they are with the realities of most Americans by coming up with their own solution during a Business Roundtable on December 4th 2012. In their recommendation to the President of the United States, they proposed that the retirement age should be moved up from age 67 to age 70. According to them, this represents the current “demographic realities of the work force.”
Besides not making much of a difference to the Medicare program, their “demographic reality” is a far cry from the realities of most Americans who are not top executives or VP’s in major corporations. There is absolutely no way an average 67 year old is going to find work in a job market that considers even 45 to be too old to hire. It makes one wonder what planet in America most leaders of the business world are living in.