Let's note, just for the record, that both President Bush and Sen. John Kerry have evaded the nation's largest budget problem: controlling federal retirement spending, mainly Social Security and Medicare. Partisans extol their candidates' honesty and courage, while both duck hard political choices. They propose new spending programs and tax breaks for education, health care, homeland security and worker training. All sound beguiling, but all would -- over the long run -- make a bad budget situation worse.
The central distributional issue of our time is not between rich and poor. It is between retirees and non-retirees. In fiscal 2003, Social Security and Medicare cost $744 billion. All federal retirement and disability programs now account for more than 40 percent of the budget. By 2030 the number of elderly beneficiaries is reckoned to rise about 80 percent. With plausible assumptions about health costs, the Congressional Budget Office projects that spending on these programs will increase roughly 75 percent by 2030 (as a share of national income).
If retirement spending isn't controlled, taxes will have to rise steeply (a third or more) and other spending will have to be cut savagely, or budget deficits will explode. Everyone knows this; surely Bush and Kerry do. But our leaders refuse to lead. They won't acknowledge the obvious or do something about it.
True, Bush supports "private accounts" for Social Security. These would involve investing some Social Security contributions (that is, payroll taxes) in private stocks and bonds. This has superficial appeal, especially for younger workers. Private accounts might generate more income and improve the chances of paying future benefits. But someone's got to pay for these accounts. If Bush diverts some payroll taxes into them, he must raise other taxes, increase the deficit or cut benefits for today's Social Security recipients (today's taxes pay their benefits). Naturally, these unpopular details go unmentioned.
Kerry's position is, well, more conservative. He champions the status quo. "I will not privatize Social Security. I will not cut benefits," he says. He pledges not to raise the retirement age. Similar guarantees seem to apply to Medicare. His policy amounts to a huge tax increase for tomorrow's workers, most of whom won't vote in November.
As a society, our failure starts with self-deception. We won't discuss these problems candidly. Politicians, pundits, journalists and "experts" talk mainly in technocratic language ("trust fund balances," "entitlements crises") designed to bore and baffle ordinary people. Heaven forbid that anyone might understand. Clarity of language reflects clarity of thought. It can create a consensus for action. Obscurity of language encourages sloppy thinking. It betrays a bias for inaction. We've opted for obscurity. Here's what candor would compel us to say:
First, Social Security and Medicare are welfare programs. They are not (as liberals like to say) "social insurance." Nor are they (as conservatives often say of Social Security) "pensions." These labels aim to deter scrutiny or criticism. Social Security and Medicare benefits are paid with current taxes. The same is true of (say) food stamps, farm subsidies or unemployment benefits. Workers have not been "saving" to pay their own Social Security and Medicare costs.
Second, only two groups can pay retirement costs -- retirees and non-retirees (that is, mainly workers). Expanding Medicare or Social Security usually means non-retirees increase their subsidies to retirees. The moral, political and economic justification for this was greater in 1935 (Social Security's creation) and 1965 (Medicare's). The elderly then were fewer and poorer. People hadn't saved for unexpectedly long lives. Now we need to ask: Are the people receiving benefits more deserving than the people paying them? Higher costs for the elderly (such as last week's increase in Medicare premiums) aren't automatically bad.
Third, "solving" the Social Security problem is not the same as "solving" the problem of retirement spending. Liberals and conservatives often imply that if they can cover Social Security's long-term costs, everything is okay. Not so. The reason: Health costs dominate future spending. In CBO projections, about 70 percent of higher retirement spending by 2030 involves Medicare and Medicaid (which covers some nursing home care). Social Security, Medicare and Medicaid should be considered as a package.
Fourth, any sensible solution must include benefit cuts. There are many possibilities: higher eligibility ages; higher Medicare premiums; stingier benefits for wealthier retirees. Present benefit levels imply staggering future tax burdens. That would be unfair to workers and might harm the economy. Even if benefits are cut, taxes will rise because there will be, relatively speaking, more retirees and fewer workers.
These are hard issues. But they are harder today because we didn't face them yesterday, and they will be harder tomorrow because we're not facing them today. Our lack of candor makes them worse. Prodded by Bush, Congress last year extended Medicare coverage to drugs. This significantly increased Medicare's long-term costs. Hardly anyone asked the basic question: Why should younger people, who need to pay for diapers and mortgages, be forced to pay for older people's drugs? People at different life stages have different costs. There was a case for coverage of catastrophic drug costs, though not ordinary costs.
Bush and Kerry practice and perpetuate this national denial. The longer benefit cuts are postponed, the more likely it is that Congress will be forced to make abrupt and unfair cuts for current recipients even while raising taxes. Bush deserves to lose the election based on his cynical Medicare drug plan, designed to attract elderly voters. But Kerry does not deserve to win, based on his equally cynical pandering to the same voters.