Chris Jacobs, DCNF
Despite being the oldest American president in history, Joe Biden has shown a distinct lack of interest in caring for America’s seniors. His budget included virtually no reforms to Social Security and Medicare programs that face growing financial shortfalls.
By ignoring the crisis facing our current entitlements while proposing new financial commitments, Biden will create problems for multiple generations. Thanks to inaction by this administration and congressional Democrats, today’s seniors will face an uncertain retirement. Similarly, younger Americans, who will pay the price for politicians’ unwillingness to make hard choices, face a bleak future full of mountains of debt.
Entitlements In Bad Shape
Consider the situation faced by Social Security and Medicare prior to the start of the pandemic last year. Last spring, the Social Security actuary projected that the program would incur a $21.1 billion deficit this year, with losses rising significantly thereafter.
Medicare became functionally insolvent several years ago. Prior to Obamacare, the trustees projected the program would face insolvency in 2017. Obamacare’s supposed improvements to the Medicare trust fund occurred only on paper, since lawmakers used the same savings both to fund Obamacare and extend Medicare’s solvency.
Over the past year, Medicare and Social Security’s financial situation may have deteriorated further. COVID-19-related lockdowns and the unemployment they generated likely reduced the payroll tax revenue that funds both programs. But because the trustees for the two programs have delayed the release of their annual reports, we don’t yet know the full extent of the damage to Medicare and Social Security post-pandemic.
Biden Proposes Nearly Nothing
Amid these looming, and likely growing, fiscal crises, what reforms did the Biden budget propose? Practically none. In 1,740 pages of documents — the budget itself, an appendix, and a volume of analytical perspectives — the administration used the word “solvency” regarding Medicare and Social Security not at all.
The budget’s one proposal regarding Social Security — enhanced efforts to verify individuals remain eligible to receive benefits — would generate a net of $37.3 billion in estimated savings over a decade. While helpful and potentially good policy, these paltry savings represent a fraction of the program’s estimated losses of $1.1 trillion between now and 2029.
Biden’s proposals on Medicare would arguably worsen that program’s predicament. The budget proposed closing a loophole — the same loophole he and his wife recently exploited to avoid over $500,000 in payroll taxes — to generate additional revenue from “high-income” taxpayers.
A Department of the Treasury document claims that revenue from the tax increase would go into the Medicare trust fund. But as with Obamacare a decade ago, the administration also wants to use these tax increases to fund its new entitlement programs. The net effect: A Medicare program that would look better on paper, but worse in practice, because another fiscal sleight-of-hand will allow politicians to ignore its problems.
The Problems With Doing Nothing
Both Medicare and Social Security present fiscal problems that in time few politicians will be able to ignore. Prior to COVID-19, program actuaries projected Medicare and Social Security’s collective shortfall at $65.4 trillion, or roughly 4.4% of GDP. More realistic assumptions regarding provider reimbursements would raise Medicare’s projected shortfall by trillions more.
Therein lies the real problem with the Biden budget. Even if one supports the president’s argument that “the rich” need to “pay their fair share,” the trillions of dollars in tax increases Biden proposed will all go towards new spending, rather than solving imminent fiscal problems.
In its last five years, the president’s budget would take federal revenues to levels never imposed over a sustained period in our nation’s history, with nearly one in every five dollars of our GDP flowing to the IRS. Yet enacting that budget in toto would do nothing to resolve the looming shortfalls Medicare and Social Security face.
The Obsession With Expanding Dependence
To the extent that they have a strategy for addressing these shortfalls at all, Democrats appear to believe that expanding the welfare state will eventually create a rationale for broad-based tax increases. The $6 trillion “infrastructure” package proposed by Sen. Bernie Sanders (I-VT) shows how lawmakers clearly wish to focus on expanding existing programs — lowering the Medicare eligibility age and expanding benefits — and creating new entitlements, rather than making current programs fiscally sustainable.
But lowering the Medicare age amounts to drilling a hole in the side of a leaky boat already struggling to cover 64 million beneficiaries. Seniors might appear intrigued by the prospect of new vision and dental benefits Democrats have proposed for Medicare — until they realize that the fund that covers hospital care will run out of money to pay full benefits in a few short years. A program that will fund seniors’ hearing aids, but cannot afford to treat their heart attacks, would provide cold comfort to beneficiaries currently in retirement.
On the other end of the age spectrum, the trillions of dollars in new fiscal commitments that future generations must repay will burden millennials with higher taxes and more debt than any student loan “forgiveness” a Biden administration can offer. The approximately $1.6 trillion in federal student loan debt currently outstanding doesn’t begin to compare with the at least $65.4 trillion long-term cost of Medicare and Social Security, let alone the additional programs Democrats want to add.
Tax Increases Ahead
The problem with Biden’s plan for trillions of dollars in additional spending doesn’t just come from what that spending will do, but what it doesn’t include. Pretending problems don’t exist now will only make them harder to fix when the fiscal crunch finally arrives, as it surely will. And any tax increases or spending reductions enacted to pay for new spending — as opposed to bolstering Medicare and Social Security — will only reduce our room for fiscal maneuvering to make our current entitlements solvent.
The president’s plan for Washington to provide virtually all things to all people will impose taxes on individuals making under $400,000 as surely as night follows day. The fact that Biden hopes it will fall to future politicians to break his promise, because he made our impending entitlement crisis that much worse, speaks to the cynical nature of today’s Democratic Party.
Mr. Jacobs is Founder and CEO of Juniper Research Group, and author of the book The Case Against Single Payer. He is on Twitter: @chrisjacobsHC.
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