Almost no one expects the budget conference committee that reconvenes this week to produce a “grand bargain” between the House and Senate, but entitlements and taxes — the stuff of any such bargain — are edging to the forefront as lawmakers consider asking high-income seniors to pay more for Social Security and Medicare.
President Barack Obama and House Budget Chairman Paul D. Ryan, a Wisconsin Republican, each have proposed requiring wealthier seniors to pay higher Medicare premiums. Meanwhile, Democrats and Republicans alike have floated plans to raise the cap on the amount of income that may be taxed for Social Security.Broadly defined as “means testing,” proposals to link income levels with public benefits occupy a gray area between raising taxes and cutting spending, say experts, and therefore appeal to both parties. The approach has drawn fresh notice as negotiators hunt for non-tax revenue sources to offset new cuts imposed by the budget sequester.
“If the idea is to get more contribution from upper-income people, it fits that agenda,” says Robert L. Bixby, executive director of the Concord Coalition, which promotes deficit reduction. “But it’s also saving the government money. So it’s one of those proposals that can fit both parties’ agenda. It’s kind of tiptoeing into the entitlement reform arena.”
Predictably, labor and liberal activists have forcefully rejected talk of entitlement changes, warning lawmakers to take any “grand bargain” off the table, and mounting a campaign to boost Social Security benefits, not reduce them.
AFL-CIO President Richard Trumka last month issued a tea party-style warning that the labor federation would work to unseat any Democrat who considers cutting Social Security, declaring: “We will never forget. We will never forgive. And we will never stop working to end your career.”
But Democrats are so eager to restore at least some of the $85 billion in across-the-board spending cuts set to kick in next year under sequestration that they may shrug off such warnings. Sen. Patty Murray, the Washington Democrat who chairs the budget conference committee with Ryan, has said the panel’s “absolute minimum” goal should be to replace the sequestered funding.
“A lot of this stuff has been put into sharper focus because of the sequester,” says Maryland Rep. John Delaney, noting that fellow Democrats also are seeking greater flexibility to increase spending in areas such as education and infrastructure. “It has caused us to increase the dialogue around appropriate adjustments to our mandatory spending programs, more commonly called entitlement reforms.”
The most likely target is Medicare, which covers about 50 million older Americans and accounts for 16 percent of the federal budget. Medicare is already means-tested in that individuals making $85,000 a year or more, and couples making twice that, pay a larger share of the premiums for doctor and outpatient services (Medicare Part B) and for prescription drugs (Part D).
Upper-income Medicare recipients pay anywhere from 35 percent to 80 percent of the premium, compared with 25 percent for most beneficiaries. Obama’s fiscal 2014 budget proposed increasing those percentages to a low of 40 percent and a high of 90 percent. Ryan has endorsed a similar approach, saying that tax increases are off the table but writing in a Wall Street Journal opinion article last month that one source of revenue would be to “ask the better-off to pay higher premiums for Medicare.”
Earlier this year, Sens. Tom Coburn, an Oklahoma Republican, and Claire McCaskill, a Missouri Democrat, introduced their Medicare Fair Share Act, which would alter premiums to require higher-income seniors to cover more of the program’s costs.
“It’s probably the least-disliked proposal on the left, in part because it is effectively a tax on higher-income seniors,” says Loren Adler, research director at the Committee for a Responsible Federal Budget. “But since it’s part of an offsetting cost to Medicare, it counts as a spending cut to the budget.”
Raising Medicare premiums for the wealthy “gets talked about a lot behind closed doors,” Adler says. “If this was part of a proposal to replace sequester, I’m pretty confident you’d get the large majority of Democrats on board with it.”
Liberal activists, though, strongly object that such proposals would capture middle-class beneficiaries, not just the wealthy. Obama’s proposal would eventually require 25 percent of beneficiaries to pay more, says Max Richtman, president of the National Committee to Preserve Social Security and Medicare, and bring the earnings threshold for higher premiums down to $47,000 a year.
“I think there are ways to improve the program without cutting benefits,” Richtman says. “You can bring in more revenue. You can allow Medicare to negotiate prices for prescription drugs, which they are now prohibited from doing.”
Proposed Social Security changes have triggered even greater alarm on the left. Obama sparked an outcry when he proposed adjusting the formula for calculating Social Security cost-of-living increases. Now the program’s defenders have launched an all-out campaign not only to protect Social Security but to enlarge it, because they see a retirement income crisis ahead.
“We are watching this very closely,” says Nancy Altman, co-director of Social Security Works, a nonprofit coalition working to improve the program. “We don’t want to see any cuts. But we’re also saying that this is the wrong conversation that’s going on. We’re trying to educate that conference committee that their eye is in the wrong place.”
Groups working to expand the program warn that benefits cuts or premium hikes will harm vulnerable Americans and erode support for Social Security, which derives political clout from serving a broad constituency that includes higher-income beneficiaries.
Led by Sen. Bernard Sanders, a Vermont independent, activists plan to deliver a petition with more than 400,000 signatures to Capitol Hill defending Social Security, Medicare and Medicaid when the budget conference committee resumes talks. They’re rallying support behind legislation by Iowa Democratic Sen. Tom Harkin that would increase Social Security benefits by $70 a month, among other measures.
But even that bill would have the effect of raising costs on upper-income seniors because it would phase out the $113,700 limit on income subject to the Social Security payroll tax. Republicans have in the past opposed this approach, but the prospect that the program is going broke has made them more receptive.
Some experts warn that Social Security is structurally unsound and will run out of money in two decades. As the baby boom generation retires, the number of beneficiaries is growing, even as the number of wage earners paying into the program shrinks. The longer Congress waits to act, experts say, the more it will need to raise taxes and slash benefits to keep the program afloat.
“We’re getting past the critical point,” says Charles Blahous, a public trustee for Social Security and Medicare and an architect of President George W. Bush’s failed plan to set up private investment accounts for Social Security. “We’re so late in the game with respect to fixing Social Security’s finances that it’s an open question whether we’re going to be able to do it at all.”
The projected future shortfalls are so great that asking wealthier seniors to pay more will not fix the problem, says Blahous, who is also a senior research fellow at George Mason University’s Mercatus Center, a pro-business, anti-regulatory think tank. But such a move would buy some time and could help facilitate a larger bipartisan deal, he acknowledges. Two leading bipartisan deficit reduction commissions have recommended raising the Social Security payroll cap.
Such warnings have prompted some in the GOP to push for action. Rep. Reid Ribble of Wisconsin has rounded up signatures from 50 colleagues in both parties on a letter urging GOP leaders to tackle Social Security as part of the current fiscal negotiations.
“I’m starting to challenge my colleagues both on the left and on the right to get serious about it, and I do believe that both sides want it fixed,” Ribble says. He has a four-point plan that, in addition to means-testing benefits and adjusting the inflation formula, would raise the Social Security payroll tax cap. The program once taxed 90 percent of wages, but because of the nation’s growing wealth disparity, that has dropped to about 83 percent. Ribble says his plan would bring it back up to 90 percent.
Ribble has discussed the plan with an informal bipartisan working group, and he’s shopped it around to dozens of his colleagues, including Ryan. Ribble says Ryan is “not sure” such a plan could make it through the budget conference, but that he hopes for a “down payment on reform.”
Ribble and his colleagues acknowledge that emotions run high around the issue, and the lawmaker has drawn his share of hate mail and demonstrations. But the notion that higher-income beneficiaries should shoulder a greater burden is one that his constituents can understand, says Rep. Kurt Schrader of Oregon, a Democrat who has worked with Ribble on the plan.
“I think most of these groups worry that we’ll just end up doing entitlement reform without raising the revenues to support these safety net programs, and I share their concerns,” Schrader says. “It’s a whole different conversation with seniors when we say we need to raise the payroll tax for Social Security because it’s only hitting 83 percent of the population.”