Mike Kueber's Blog

December 8, 2012

Who has their head in the sand regarding Social Security?

Filed under: Economics,Issues,Politics,Retirement — Mike Kueber @ 2:13 pm

When Republicans urge that entitlement reform – Medicare, Medicaid, and Social Security – is desperately needed to get America out of its distressing financial situation, the Democrats respond that Social Security should be taken out of that discussion because it is not part of American’s fiscal problem.  Who is right?

The Democrats’ response is accurately reflected by the following so-called myth about Social Security published by Daily Finance:

  • “Here’s the source of the confusion: Historically, Social Security has collected more than it paid out. The extra money built up in a trust fund that collects interest. But due to demographic and economic changes (more on that in a minute), it’s expected that insurance payments will begin to exceed income in 2021. Around 2033, the fund will run out.  But even then, the revenue Social Security collects each year would still be enough to pay out about three-quarters of scheduled benefits as far as the eye can see

Upon closer examination, however, the Democratic response is revealed as a gross misrepresentation of Social Security’s effect on America’s solvency.  Most casual observers of Washington’s fiscal insanity know that a couple of years ago Social Security became a drain on the federal government – i.e., the program spent more in benefits than it was taking in on taxes.  So how does that gibe with Daily Finance statement that the negative cash flow begins in 2021?  This apparent contradiction is caused by the Daily Finance conclusion that Social Security trust fund “income” includes imaginary interest that federal government is paying on imaginary IOUs. 

Fiscal conservatives have argued for years that the concept of a trust fund and IOUs from the general fund is misleading because the health of the trust fund and the general fund are inextricably intertwined.  The fact is that Social Security is already a drain on the federal treasury, as the SS Trustees recently admitted it is annual report:

  • Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets (IOUs) from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.

Incidentally, the Trustees also explained in the same report that the Social Security tax holiday did not damage the long-term solvency of the trust fund because of further artificial accounting:

  • A temporary reduction in the Social Security payroll tax rate reduced payroll tax revenues by $103 billion in 2011 and by a projected $112 billion in 2012. The legislation establishing the payroll tax reduction also provided for transfers of revenues from the general fund to the trust funds in order to ‘replicate to the extent possible’ payments that would have occurred if the payroll tax reduction had not been enacted. Those general fund reimbursements comprise about 15 percent of the program’s non-interest income in 2011 and 2012.

It’s time to jettison the never-accurate belief that Social Security is a retirement account that takes in our contributions, preserves and grows them, and finally returns them to us in our retirement.  It is time to recognize Social Security as a quasi-welfare program (its payout is much more generous to low contributors) that has already distributed most of our contributions (to overpay earlier recipients).  The result is that federal government, just like many public and private pensions, has trillions of dollars of unfunded liabilities that our children will have to pay while they receive diminished benefits. 

Failing to act now to correct this injustice to our children will only exacerbate it.  Who’s in favor of that?

September 17, 2011

Social Security as a Ponzi scheme – part II

Filed under: Issues,Politics — Mike Kueber @ 10:26 pm
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I recently blogged about the brouhaha created by Rick Perry calling Social Security a Ponzi scheme.  My conclusion was that Social Security shared some important similarities with a Ponzi scheme – i.e., “those who got in early, like my grandparents, made out like bandits, whereas those who got in late are faced with getting less than they paid in unless the pool of workers in America keeps growing.”  But I also suggested that Perry might be wise to tone down his colorful language.

I have decided to supplement that posting because earlier today, America’s most pre-eminent political columnist, Charles Krauthammer, weighed in on the same issue.  According to Krauthammer, there are four key propositions in the Great Social Security Debate:

  • Proposition 1: Of course it’s a Ponzi scheme.
  • Proposition 2: The crucial distinction between a Ponzi scheme and Social Security is that Social Security is mandatory.
  • Proposition 3: Even a mandatory Ponzi scheme such as Social Security can fail if it cannot rustle up enough new entrants.
  • Proposition 4: This is one Ponzi scheme that can be saved by adapting to the new demographics.

Krauthammer says that Social Security can be fixed in three easy steps – change the cost-of-living measure, means-test for richer recipients and, most important, raise the retirement age.  And he concludes his column by saying:

  • Of course it’s a Ponzi scheme. So what? It’s also the most vital, humane and fixable of all social programs. The question for the candidates is: Forget Ponzi — are you going to fix Social Security?”

As usual, I agree with Krauthammer.  Social Security is a successful federal program that can be fixed relatively easily if we avoid being drawn into philosophical and semantic arguments over whether Social Security is a pre-funded retirement plan or has evolved into a pay-as-you-go welfare program for the poor and middle-class.

P.S., because Social Security has evolved into a pay-as-you-go program, it will be exceedingly difficult to reform the program back to the pre-funding required for personal retirement accounts.

September 12, 2011

Rick Perry thinks Social Security is a Ponzi scheme

Filed under: Issues,Politics — Mike Kueber @ 11:48 pm
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Rick Perry has been in a bit of a free-fall since his debate at the Reagan library.  Although I was critical of his rejection of the science on global warming, most pundits have focused on his criticism of Social Security as a Ponzi scheme.  They argue that Perry’s criticism of Social Security suggests that Perry wants to do away with the program.

The heat from the pundits appears to be getting to Perry because on Sunday he wrote an op-ed piece in USA Today that attempts to clarify what he thinks about Social Security – namely he wants to mend it, not end it.      He argues that without mending, Social Security in 2037 will be able to pay retirees only 76 cents for every dollar  that they paid in.  He does not, however, give any inkling of how it should be fixed.

I am inclined to give Perry some latitude for calling Social Security a Ponzi scheme.  Why?  Because I’ve previously blogged about it being a Ponzi scheme:

  • Congress now projects that Social Security has slid into permanent deficit status – i.e., it will be sending out more money than it takes in for the foreseeable future.    Thus, the world’s biggest Ponzi scheme is finally beginning to collapse.  Instead of siphoning off money from the system, as the government has been doing for decades, it will now have to take general revenues to pay its Social Security obligations.

My statement drew a vigorous dissent from a commentator who went by the name of Exasperated Liberal:

  • Social Security is in deficit now–right on schedule–but was in surplus for the previous thirty years. It is not–and has never been–a Ponzi scheme, but–instead–has been self-sustaining since its inception. If money will be spent from the general fund for Social Security benefits, it is because they have been ‘borrowed’ from the Social Security trust fund by those who wish to lower taxes without taking responsibility for the future. Social Security could be ‘fixed’ with some simple adjustments, but it is not at all clear that it needs fixing.”

I, however, got the last word:

  • I called Social Security a Ponzi scheme because those who got in early, like my grandparents, made out like bandits, whereas those who got in late are faced with getting less than they paid in unless the pool of workers in America keeps growing. That certainly has some Ponzi characteristics.”

The NY Times has waded into this controversy via its regular feature titled “Room for Debate,” which consists of several learned commentators to give us their two cents.  Of the five commentators on this issue, I was especially impressed by the analysis of Ramesh Ponnuru, who objectively pointed out both the similarities and the differences l Security and a Ponzi scheme.  The other commentators seem to gloss over the similarities and focus on the differences.

Based on this dust-up, I suspect that Rick Perry will tone down his straight talk in the future.

August 25, 2011

Entitlement has become an ugly word

Filed under: Issues,Politics — Mike Kueber @ 4:18 am
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The following diatribe is floating around Facebook:

  • Entitlement my butt!! Older Americans paid into Social Security with every paycheck. Their benefits aren’t some kind of charity or handout! Congressional benefits – free health care, outrageous retirement packages, 67 paid holidays, three weeks paid vacation, unlimited paid sick days – now THAT’S welfare.  And Congress has the nerve to call Social Security and Medicare entitlements? Re-post if you are sick of their crap and ashamed of our “leaders”!

Many Americans appear to have conflated entitlement with welfare even though there is a stark difference.  An entitlement is simply something that a person has a right to.  A government entitlement is a program that provides benefits to those beneficiaries who satisfy the eligibility requirements provided for in the law that authorizes the program.  The beneficiaries are legally “entitled” to the benefits.  By contrast, government welfare means a program that provides benefits to individuals who are in dire straits and need help.  Eligibility for welfare benefits is “need-based.”

Based on these definitions, Medicaid, TANF (temporary assistance to needy families), SNAP (food stamps), and Section 8 housing are America’s dominant welfare/entitlement programs.  Social Security, Medicare, and Unemployment Benefits are entitlement programs, but not government welfare because they are not need-based.

Welfare has always had a negative connotation because most Americans want to be self-sufficient and don’t want to depend on government charity or handouts, so entitlement beneficiaries don’t want to be lumped in with welfare beneficiaries.  The problem is that, because of the constant refrain that entitlement programs are bankrupting America, many people have begun to attach a negative connotation to all entitlement programs, too.

The author of the Facebook diatribe is trying to distinguish Social Security from other entitlements on the basis that individuals have earned the benefit by virtue of contributions, and that point has some merit, although Social Security benefits have always exceeded the amount that was actuarially justified.

Furthermore, Social Security is a red herring because most experts agree that Medicare and Medicaid, not Social Security, are the programs that need to be reformed before they bankrupt America.  Medicare is like Social Security in that beneficiaries have contributed to the system, but their contributions aren’t even close to actuarial justification.  And there are no contributions from beneficiaries entitled to benefits under Medicaid.   Interestingly, one of the suggested fixes to Medicare is to convert it to a welfare program – i.e., make it need-based.

Entitlement reform is needed.  Everyone agrees that Social Security is in a category by itself because contributions approximate benefits, but that is not true about Medicare.  Any serious attempt to balance the budget, like the Paul Ryan proposal, will need to make major changes to Medicare and Medicaid.

August 21, 2011

Scott Burns gives a Social Security tutorial

Filed under: Economics,Finances,Issues,Politics — Mike Kueber @ 12:42 pm
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Scott Burns is a nationally syndicated financial columnist, and for many years I have read his column in the San Antonio Express-News.  Each Saturday he responds to financial questions from readers, most of whom are from Texas, so I assume his column is most popular here.

In Burns’ column this week, the first question was submitted by Austin resident G.R., who wanted to talk about Social Security.  G.R. began by noting that Social Security is not a retirement plan, but rather is social insurance to prevent the elderly from becoming destitute, and then asked how the solvency of Social Security would be affected if we instituted a 1% tax on all income above the current income cap of $105,000.

Burns used the question to address some misunderstandings about Social Security:

  • While it’s true that there is an earned-income cap of $106,500, a person who makes more than that doesn’t get a free ride under Social Security because their benefit is based on their income that was taxed by Social Security (i.e., $106,500), not on their entire income.  Thus, these people have to save more of their income to avoid a dramatic drop in income when they retire.  (Although this is an interesting point, I don’t think it defeats the argument that high earners are getting off easy.  See the 3rd dot point.)
  • Although the income cap has been increasing, it has not been increasing enough.  In the past, 90% of income was taxed by Social Security.  Currently only 86% of income is taxed by Social Security.  The Simpson-Bowles commission recommended adjusting the income cap so that America returns to the 90% figure, and Scott Burns endorses the idea.  (Adoption of Simpson-Bowles would have been great for America; unfortunately, Paul Ryan and the House Republicans allowed “perfect to be the enemy of good” and defeated it.)
  • The Social Security tax of 12.4% is actually not a flat tax, but rather is sharply progressive because the benefits are calculated so that those with income up to $9,000 receive benefits that amount to 90% of their income, while any income between $9,000 and $64,000 is credited at 32% and income between $64,000 and $106,800 is credited at only 15%.  This math corresponds with an earlier article in the Express-News by Oscar Garcia asserting that workers with “average earnings” can expect retirement benefits that replace about 40 percent
    of their average lifetime earnings.”  By way of contrast, high-paid workers near the top of the income cap can expect a benefit of only 27.7% of earnings, even though they contributed at the same rate.  (This is fascinating information. It supports G.R.’s point that Social Security is not a retirement plan, but rather is social insurance or quasi-welfare.)
  • The Medicare tax of 2.9%, which is not subject to the earned-income cap of $106,800, is even more progressive than the Social Security tax because all people, regardless of how much or how little they contribute, receive the identical benefit – i.e., full Medicare coverage.  A person who makes $10 million would pay in 1000 times as much as a person who makes $10k, but their respective benefit would be identical.  Burns notes that, despite this progressivity, “In terms of our national future, Social Security is a sideshow.  The big problem is Medicare.”  (Indeed.  Imagine how progressive Medicare would be if they start means-testing it, as has been suggested by some.)  Medicare is not a simple actuarial problem, like Social Security is.  Currently, Medicare provides essentially unlimited coverage, and America’s health-care industry is doing its best to provide unlimited care.  Rationing will be an essential component to resolving this problem.)

Through the years, I have found Scott Burns to be an interesting thinker who provides useful and accurate information, and his column is time well-spent for anyone wanting to improve their financial management.

July 27, 2011

Aphorism of the Week #5 – Lies, damned lies, and statistics

“Lies, damned lies, and statistics” is of uncertain origin, but was popularized by Mark Twain.  The phrase came to mind earlier this week when I read conservative chain letter by an old geezer claiming to being shortchanged by Social Security.

The geezer argued that a person who paid into the system for 49-years, like he had done, would receive only a fraction of what he was entitled to.  Specifically, he said:

  • Remember, not only did you contribute to Social Security but your employer did too. It totaled 15% of your income before taxes. If you averaged only 30K over your working life, that’s close to $220,500. If you calculate the future value of $4,500 per year (yours & your employer’s contribution) at a simple 5% (less than what the govt. pays on the money that it borrows), after 49 years of working (me) you’d have $892,919.98. If you took out only 3% per year, you receive $26,787.60 per year and it would last better than 30 years, and that’s with no interest paid on that final amount on deposit! If you bought an annuity and it paid 4% per year, you’d have a lifetime income of $2,976.40 per month. The folks in Washington have pulled off a bigger Ponzi scheme than Bernie Madoff ever had.”

Although those numbers may sound reasonable to a person unschooled in statistics, a closer analysis would suggest that average people didn’t make $30,000 in 1962.  The average job in 1962 probably paid about $5,000, not $30,000.  In fact, the maximum income that was taxed by Social Security in 1962 was $4,800, and the SS rate at that time was 3% combined for employee and employer, not the current 15.3%.  Thus, the geezer’s example should begin the compounding process with only $144 in 1962, not $4,500.  Obviously, the results will not be in the same ball park.  I think most people accept that Social Security has been actuarially too generous for many years and that the generosity will have to end soon.

Because statistics are so easy to misuse, I am especially careful accepting any statistics that from someone without established credibility.  Although I have traditionally treated the mainstream media as credible, that is beginning to change.  Too often, journalists use statistics inaccurately to advance their story.

For example, last night Rachel Maddow’s substitute host, Melissa Harris-Perry, reported on a lady in Los Angeles who lost her job at UCLA and is now facing financial devastation because her replacement job pay $40,000 less and her house has lost $200,000 in value.

My skepticism concerns the value of the house.  The number we are given is the value of the house at the height of the real estate bubble.  What is the relevance of that number?  A more relevant number would be the cost of the house when the UCLA person bought it.  For all we know, the house is worth more than what the person paid for it.  But such information would detract from the plight of the UCLA person.

I remember thinking the same thing when I read about the Enron collapse and its effect on past and present employees whose 401k consisted almost entirely of Enron stock.  In all the stories that showed employees and retirees lamenting the loss of 90% of their 401k value, the comparison was always based on the value of their stock at the height of the Enron bubble.  Never once did a journalist ask what the employee had paid for the pre-bubble stock, which is obviously the more relevant number.  Once again, the journalists were using misleading numbers to advance the drama in their story.

The moral of this story – caveat emptor, or buyer beware, is the best policy.

July 19, 2011

AARP demagoguery

Filed under: Issues,Politics,Retirement — Mike Kueber @ 2:34 am
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While watching the news on TV this afternoon, I caught the tail end of an AARP commercial weighing-in on the debt-ceiling negotiations in Washington.    According to the retired teacher in the AARP commercial, the Washington negotiators are considering cuts to Social Security and Medicare, when they should be looking to cut waste and eliminate loopholes.

As I blogged only yesterday, there is always an open season in Congress for eliminating waste, but if they knew what the targets were, they would have already eliminated them.  Cuts at this time have to be made to programs that many believe to be worthwhile.

The AARP commercial is demagoguery because no one is suggesting cuts to Social Security that would affect the retired teacher in the commercial.  The proposals that I have heard discussed would affect future retirees only.  Furthermore, the AARP website claims that the Social Security system is financially solvent, but conveniently fails to mention that Medicare and Medicaid are two of the biggest reasons for our current financial pickle.

I guess it is expecting too much for a group like the AARP to take positions that look beyond its own special interests.  But we have to hope that its members do.

April 14, 2011

Obama takes a whack at the deficit by raising taxes on the rich

Yesterday, President Obama announced his plan to gain control over America’s deficit.  Part of his plan is to raise the taxes of the rich.  Not surprisingly, the NY Times editorial board and columnist Nicholas Kristof commended Obama’s plan, but they both thought a truly courageous stand would have been to increase the taxes of the middle class, too, so as to avoid draconian spending cuts.

Of course, there are counter-opinions that any tax increase is political suicide.  If you doubt that, recall that the last person who campaigned on broadly raising taxes was presidential candidate Walter Mondale, who suffered one of the most lopsided electoral defeats ever in 1984.

Obama, of course, is constrained to raising taxes only on the rich because of his famous campaign pledge against raising taxes on anyone except those who make more than $250k.  Violating that pledge would expose him to the same ridicule that Bush-41 received after breaking his “Read My Lips” promise.

Personally, I agree with the NY Times that the taxes of the middle class should be raised, but I would also raise the taxes of the lower class.  Conservatives have always loved the idea of everyone paying something, and Obama seemed to accept that concept in his speech yesterday:

  • As a country that values fairness, wealthier individuals have traditionally borne a greater share of this burden than the middle class or those less fortunate. Everybody pays, but the wealthier have borne a little more. This is not because we begrudge those who’ve done well -– we rightly celebrate their success. Instead, it’s a basic reflection of our belief that those who’ve benefited most from our way of life can afford to give back a little bit more.” 

Obama’s rhetoric makes sense, but it doesn’t reflect the fact that nearly half of American taxpayers pay no income tax.  In fact, because of the earned income tax credit, millions of Americans are refunded tax money that they never paid. 

Because of demagoguing by liberals, you might not recall that the Bush tax cuts were not solely for the rich.  Instead, his tax cuts were designed to benefit all taxpayers, with the rich to benefit proportionately less.  That same approach should be used to increase taxes.  Shared sacrifice means everyone, including poor, middle class, and rich, as well as seniors, juniors, and tweeners.

Other carps

The following are some incidental carps that I have about the Obama address yesterday:

  • Obama paid lip service to America’s fundamental faith in the free market, but the bulk of his speech revealed that he placed a higher value on the role of government:

“From our first days as a nation, we have put our faith in free markets and free enterprise as the engine of America’s wealth and prosperity. More than citizens of any other country, we are rugged individualists, a self-reliant people with a healthy skepticism of too much government.  But there’s always been another thread running through our history -– a belief that we’re all connected, and that there are some things we can only do together, as a nation. We believe, in the words of our first Republican President, Abraham Lincoln, that through government, we should do together what we cannot do as well for ourselves.”

  • Obama acted like everything was rosy until Bush-43 screwed things up.  Personally, I have no recollection of those halcyon days in 2000 when America wasn’t obsessed with the actuarial time bombs associated with Social Security or more problematically, Medicare and Medicaid:

As a result of these bipartisan efforts, America’s finances were in great shape by the year 2000. We went from deficit to surplus. America was actually on track to becoming completely debt free, and we were prepared for the retirement of the Baby Boomers.”

  • After noting earlier in his speech that no one wants their taxes increased, Obama opined that the rich actually do want their taxes increased:      

“I say that at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more. I don’t need another tax cut. Warren Buffett doesn’t need another tax cut. Not if we have to pay for it by making seniors pay more for Medicare. Or by cutting kids from Head Start. Or by taking away college scholarships that I wouldn’t be here without and that some of you would not be here without.  And here’s the thing: I believe that most wealthy Americans would agree with me. They want to give back to their country, a country that’s done so much for them. It’s just Washington hasn’t asked them to.”

I suppose I shouldn’t have expected Obama to stake out a reasonable budgetary position like the Bowles-Simpson plan to start with.  The Ryan budget proposal obviously was unacceptable to most Americans; rather it was designed to satisfy conservatives.  Similarly, Obama’s position probably appears reasonable to liberals.  I hope there are enough pragmatists in the middle, like the “gang of six” in the Senate, who want to end the posturing and actually do something to get a handle on our deficit.

April 13, 2011

Balancing the budget – current developments

Paul Ryan’s balanced-budget proposal has revived the conversation that seemed to die when the Bowles-Simpson plan failed to secure the super-majority arbitrarily imposed by President Obama.  The revival is a good thing.  But now there is talk that President Obama is going to formally adopt a variation of Bowles-Simpson as a moderate alternative to Ryan’s proposal.  Although I believe that the Bowles-Simpson plan is better than Ryan’s because it relies partially on tax increases, I am concerned that Obama’s support might be the kiss of death.  He has become such a partisan president that his support of Bowles-Simpson will inevitably cause many conservatives to oppose it.  Bowles-Simpson is currently being brought to Congress by the so-called “gang of six,” a bipartisan group of three Democratic and three Republican senators, and I believe that its prospects will not be helped by Obama’s support.

According to the mainstream pundits, Ryan’s budget proposal is almost dead-on-arrival because it takes on two sacrosanct programs – Medicare and Medicaid.  The Medicare reform is especially dangerous because everyone knows that seniors vote at a much higher percentage than other Americans.  Two things about this punditry are false:

  1. Medicaid is not Medicare.  Pundits conflate Medicare and Medicaid even though they are dramatically different.  Medicare is significantly similar to Social Security, the other senior-citizen program, but Medicaid is more like Welfare, which the American public was very amenable to trimming back by Bill Clinton and Newt Gingrich in 1996.
  2. Ryan is grandfathering Medicare for seniors.  Although the Ryan proposal is leaving Medicare unchanged for anyone 55 or older, Democrats are suggesting that they will be able to demagogue the issue in 2012 so that current seniors feel threatened. That cynical suggestion takes on some validity after hearing Chris Matthews recently argue that Ryan’s proposal would put all seniors at risk after a lifetime of paying for their Medicare benefits.  Factually, that is false.

Conceptually, I like Ryan’s proposal to reform Medicare by shifting to guaranteed-contribution vouchers and to reform Medicaid by shifting to block grants to the states, but those are changes that are not possible in a divided Congress.  George Bush found that out in 2005 when he tried to reform Social Security with privatized accounts (which, incidentally, was a similarly good idea).  With a divided Congress, it is better to reform Medicare and Medicaid with the tweaking suggested by Bowles-Simpson.  Fundamental reform of Medicare and Medicaid, along with the repeal of ObamaCare, will be feasible only if the Republicans take control about Congress and the Presidency in 2012.

April 5, 2011

Paul Ryan’s Path to Prosperity

House Budget Chairman Paul Ryan finally produced the proposed Republican budget for 2012.  He calls it The Path to Prosperity.  I haven’t read the document, but I did read his 30-page summary.   From that summary, I gleaned the following key points:

  • Medicare.  For people under 55, Medicare will be replaced by a program that provides seniors with premium subsidies to be used with private insurers.
  • Medicaid.  The one-size-fits-all federal Medicaid will be replaced by a program that provides block grants to states, and then states will design a Medicaid program to fit their needs. 
  • Social security.  The tweaking Social Security to bring it into balance will be handled independently of this budget.
  • Defense.  Adopts the Obama-Gates proposal to cut defense spending by $78 billion.
  • Taxes.  Reduces the top rate for corporations and individuals from 35% to 25%.
  • ObamaCare.  Repeals it.

I am encouraged by Ryan’s proposed budget.   Liberal blogger Ezra Klein of the Washington Post has noted that the Medicare and Medicaid proposals don’t do anything about skyrocketing medical costs.  Rather, the proposals merely cut federal expenses.  I agree, but cutting expenses is the primary concern of an out-of-balance budget.   Further work will need to be done to bring down skyrocketing medical costs.

A similar criticism could be lodged against Ryan’s repeal of ObamaCare.  I would like to ask Ryan what happened to that election-year jingle called – “Repeal and replace”?  ObamaCare should be repealed, but America needs to replace it with something else to ensure that universal medical insurance is available and affordable.

Some might argue that the Social Security problem is not being addressed, but I don’t think that is a valid criticism.  Most people in Washington have concluded that Social Security is the easiest entitlement problem to fix, and Ryan is merely preventing Social Security from distracting from the harder problems that he is attempting to fix.

Most people agree that our corporate tax rate, which is the highest in the world, needs to be reduced, but Ryan does not say anything about eliminating all of the corporate tax loopholes that allow GE to pay not taxes on billions of dollars of income.  Regarding the individual tax rate, most people think that fat cats should pay more than 25% unless you eliminate virtually all deductions, and there is no indication that Ryan plans that.  (The summary doesn’t say whether the estate tax will survive, but I hope it does because it provides too much easy money.) 

Blogger Klein has suggested that the Ryan budget might cause many Democrats to give the Bowles-Simpson budget another gander.  I would love for Congress to debate the merits of these two plans and choose between them.  That would be a no-lose proposition.

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