The president and a few other prominent Democrats are openly suggesting that Social Security payments be reduced by applying a lower adjustment for inflation, and that Medicare be means-tested.
By ROBERT REICH
Tribune Media Services
This is even before Democrats have begun formal budget negotiations with Republicans, who still refuse to raise taxes on the rich or close tax loopholes the rich depend on.
Its not the first time the administration has led with a compromise, but these pre-concessions are unwise.
Consider the economics. The Social Security fix the administration is touting, technically called a chained CPI for an alternative way to compute changes in the Consumer Price Index, is based on the common-sense notion that when prices rise on certain products, consumers switch to lower-cost substitutes. If steak becomes more expensive, some will switch to hamburger.
According to this view, when it comes to adjusting Social Security payments for inflation, retirees don't really need as much of an increase as they've been getting. Like most people, they can just substitute lower-cost products.
But unlike most other Americans, seniors pay 20 percent to 40 percent of their incomes for health care. They can't switch to lower-cost alternatives because they either don't exist or seniors aren't in a position to shop for them. And health-care costs have been rising much faster than inflation.
Social Security is more important than ever. Private pensions have all but disappeared. The homes many retirees had assumed would become their nest eggs when they stopped working are worth far less. Most retirees haven't saved nearly enough.
Social Security is just about the only thing many seniors can count on.
The Social Security trust fund could be flush for the next 75 years with only minor changes that wouldn't reduce payments to seniors. A simple fix would be to raise the ceiling on income subject to Social Security taxes. That ceiling is now $113,700.
Given how much income and wealth have now concentrated at the top, why not get rid of the ceiling altogether and exempt the first $15,000 of income from Social Security payments?
The case against reforming Medicare by reducing benefits flowing to higher-income beneficiaries is almost as weak.
The only way to reap significant savings from means-testing Medicare would be to cut benefits that would otherwise flow to many middle-income retirees. But these people are almost as vulnerable to rising health-care costs as are lower-income retirees.
Means-testing Medicare also runs the risk of transforming Medicare into a program for the less fortunate, which would undermine its political support.
Medicare's administrative costs are a fraction of those of private health insurance. So rather than think of Medicare as the problem, it could be part of the solution. Medicare for all, or even a public option for Medicare, would give the program enough heft to demand that health providers move from a fee-for-service system to one that paid instead for healthy outcomes.
With health-care costs under better control, retirees wouldn't be paying a growing portion of their incomes for health care.
Social Security and Medicare are the most popular programs ever devised by the federal government and among the most successful. They have dramatically reduced poverty among the nation's elderly.
If average Americans have trusted the Democratic Party to do one thing over the years, it's been to guard these programs from the GOP. Why should Democrats lead the charge against them?
Robert Reich is a professor of public policy at the University of California at Berkeley and a former U.S. labor secretary..