For a moment, let’s set aside a long list of national problems — crime, drugs, racism, election laws, epidemics, vaccinations, climate and a perilous international situation — to focus on a truly critical issue lurking beyond the purview of the nightly news.

To set the stage for this: the federal government’s current debt owed to the public — before the net contributions to that debt from a pending trillion dollar infrastructure bill and as much as a $3.5 trillion pending entitlement spending bill are added to the nation’s accounting — is $28.43 trillion. That is 102% of the nation’s total Gross Domestic Product, a level never approached since the final year of World War II. A nation with that level of debt is usually associated with fiscal failures, such as Argentina and Greece.

The Treasury pays almost $1 billion a day in interest on this debt — at a time when the federal government is borrowing (10 year note yield) at 1.33%. A year from now that rate is much more likely to be higher, not lower. The interest component of the federal budget will accordingly rise, and it must be paid to preserve the nation’s credit.

Now, let’s focus on two programs extremely important to 65 million senior Americans and their survivors and dependents: Social Security and Medicare.

Last month, the trustees of the Social Security system, including Medicare, released their annual report on the condition of those programs. The trustees are four cabinet officers appointed by President Biden. Here’s what they tell us.

The two Social Security funds combined (retirement and disability) will be exhausted in 2034. That is, all reserves will have been paid out, and the funds will only be able to pay whatever comes in from payroll taxes. At the current payroll tax rate, that will be 78% of benefits promised for that year.

The Medicare program is threatened by longer life expectancy and ever increasing senior health care costs. At the present tax rate (1.45% of wage and salary incomes, plus a 0.9% Obamacare surcharge on very high income seniors), the Health Insurance Trust Fund (HI) will be able to pay only 91% of expected claims in 2026, shrinking in every succeeding year.

Every proposed remedial step is intensely controversial. For the retirement funds, freeze cost of living increases. Raise Social Security payroll tax contributions to 10% for employees and employers, and 20% for the self-employed. Pour in general revenues — actually borrowed money — to cover annual shortfalls. Eliminate early retirement at 62 and increase the retirement age to 70. Tell seniors they’ll have to live on less.

The solutions for Medicare are even more controversial. Raise the payroll tax rate from 1.45% to 5%. Give seniors a cash incentive not to use expensive medical care here and look for treatment in low-cost countries (“medical tourism”). Ration care UK-style, by reducing services to the very elderly or unhealthy, and stretching out waiting times until some patients die. Reduce reimbursements to providers, at the risk of having fewer providers willing to accept discount-priced Medicare patients, giving them cheaper services, and reducing the number of small clinics and hospitals especially in underserved minority and rural areas.

Not only are politicians of both parties allergic to any discussion of this problem, but a large number of them — the Sanders-Biden Democrats — are hard at work to make the Medicare problem rapidly worse.

Their current plan, in Sanders’ pending $3.5 trillion budget bill, would expand benefits to include dental, vision and hearing, and lower the Medicare eligibility age to 60. If put in effect this year, it would bring the Medicare reduced benefit day two years closer, from 2026 to 2024.

The Sanders bill would also create new federally-funded entitlements, like free college tuition, national child care and universal pre-kindergarten, the spending for which would compete for many billions of budget dollars with every other federal spending program.

Covering fund shortfalls by “general revenues” is no longer, if it ever was, any kind of viable solution. “General revenues” means more borrowed money and/or more tax dollars. The burden of new taxes to avert the exhaustion of the two funds would threaten to cripple the U.S. economy, already facing COVID challenges, increasing dollar depreciation, and fierce international competition.

What’s my solution? This is an unprecedented, titanic problem, and the only hard advice I can give is: don’t make it worse. Restoring sustainability to faltering Social Security and Medicare will require extraordinarily courageous leadership not presently on the horizon.

Perhaps the roar from seniors getting reduced retirement benefits and restricted health care services will put those funds on the road back to fiscal sustainability. I hope I live to see it.

John McClaughry is vice president of the Ethan Allen Institute.

(4) comments

Edward Walker Pirie

Mr. McClaughry raises some hard questions and choices. In our hyperpartisan times, both sides of these issues want to demonize the opposition and we never have the discussion needed. Sometimes, the choices, although well intended, are not all affordable, I wish they were. We are not all going to get all of what we want, but to borrow some song lyrics, "...sometimes we can get what we need." Our society is dependent on compromise and not each side alternately ramming their point of view on all of us. Unless we realize this, we will continue to push our society and nation to the point of irreparable damage and possible breakup. I keep hoping for some mature leadership that will not be driven by party politics and willing to meet the other folks halfway. My biggest worry is I may not live long enough to see this. Thank you Mr. McClaughry for raising some of these critical issues. I consider myself an independent and I like to hear from both sides and get as much information as I can before making a decision. We need to have these discussions as people sharing a place, not from the point of view of "owning" the other side. I find that point of view detestable.

Mike from Worcester

By this time anyone who can objectively follow the news knows that fewer Americans every year own more and more of America's wealth. Billionaires spend millions to avoid paying billions in taxes. Corporations (not 'people' until Texas or Oklahoma executes one) make tens to hundreds of billions of dollars and pay nothing or nearly nothing in taxes. The tRumputin tax cut put another trillion dollars on the national debt and created no jobs, just stock buybacks. The wealthiest do not pay 'income taxes' as most of us do. They pay special category tax rates, if anything. But the Ethan Allen Institute conveniently forgets all of this. They just repeat an endless rant of how Social Security and Medicare are going to crash unless the middle class pays more. How about if those who enjoy the benefits of America the most actually contribute fairly to America? We fought a war on the principle of 'no taxation without representation' but now have only the wealthy being represented - by lawyers, accountents, lobbyists and those that made these unjust tax laws for the few at the expense of America. There are already too many speaking for the wealthy and ignoring fair representation and taxation. What would the real Ethan Allen say?

Mike from Worcester

When Willie Sutton was asked why he hit banks, he replied: "why, that's where the money is". Let us stop trying to leave more and more in the hands of fewer and fewer and not only tax the rich, but actually collect something... for a change.

Mike from Worcester

“While we have long known that billionaires don’t pay enough in taxes, the lack of transparency in our tax system means that much less is known about the income tax rate that they do pay,” administration officials wrote in a blog post the budget office released accompanying the analysis.

The White House’s calculation of what the wealthiest pay in taxes is well below what other analyses have found. The difference comes from the White House officials’ decision to count the rising value of wealthy Americans’ stock portfolios — which is not taxed on an annual basis — as income. It finds that between 2010 and 2018, those top 400 households, when including the rising value of their wealth, earned a combined $1.8 trillion and paid an estimated $149 billion in federal individual income taxes. nyt- today

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