The Bottom Line:
Static Analysis and CBO Current Law
Baseline
On the revenue side,[7] the Heritage plan reforms the tax code as
described in the Tax Reform section by creating a new labor and business tax
system. The static estimates of tax changes were developed by introducing these
changes into the CDA tax models. The resulting estimates show revenues reaching
approximately 16.9 percent of GDP in 2013 and increasing to 18.5 percent in
2022, where they remain throughout the remaining forecast period. The
Peterson/CBO baseline, on the other hand, shows revenues rising from 18.8
percent of GDP in 2013 to 23.3 percent in 2035.
On the outlay side, changes to nearly every major spending category sharply
reduce the spending estimates under the Heritage plan. The plan starts with
spending at 22.1 percent of GDP in 2012—roughly $188 billion lower than the
baseline—by assuming some cuts in discretionary spending. Outlays drop
significantly thereafter. By 2021, spending stands at 18.1 percent of GDP and
ends the forecast period in 2035 at 17.7 percent of GDP. In contrast, the
baseline projects outlays at 24 percent of GDP in 2021 and 28.3 percent in
2035.
Given this much lower spending path and steady revenue growth, the Heritage
plan achieves low deficits and then fiscal balance during the forecast period. A
balanced budget appears in 2021 and 2022 and the budget remains balanced in each
subsequent year through the simulation. The baseline shows worsening deficits
throughout the forecast period. By 2035, the fiscal deficit stands at a 5
percent of GDP in the current law baseline.
Taxes. Under the Heritage plan, the tax system is reformed, and
revenue is capped at its historical level of 18.5 percent of GDP. The plan
replaces the current six tax brackets and payroll taxes with one simple flat
rate that applies to all corporate, small business, and personal income,
excluding savings and a few other deductions, and produces that needed level of
revenue (18.5 percent of GDP).
The Heritage tax model estimates that these reforms will save taxpayers an
average of almost $280 billion annually over the next 10 years compared with the
current law baseline. By 2021, total tax savings will exceed $3.1 trillion. Many
taxpayers will immediately see a significant reduction in their tax burden. For
example, those with small business income will see an average tax reduction of
about $8,000 in 2012, rising to $11,000 by 2014. By 2014, households filing
jointly will see an average tax reduction of about $4,000, while college
students will see an average reduction of about $3,000. In 2014, seniors with
Social Security income will on average owe about half what they currently owe
($5,500 down from $11,000).
Many tax provisions have strong effects on other
elements of the budget. For example, health care benefits are no longer excluded
from taxation, but are replaced by a health care tax credit. This change will
make total compensation more transparent and in most cases quickly lead
employers to provide more compensation in the form of cash, which will encourage
employees to make more efficient purchases of health insurance. The credit is
available to all taxpayers, regardless of insurance offering by their place of
work, therefore promoting tax equity and limiting “job lock.”[8]
Saline, leave SS out of the mix. It is solvent through 2037, and can be made solvent indefinitely with minor tweaks.
So many people think that the Social Security is a great investment plan and it may only need a few tweaks. However, when compared to current ponzi schemes it looks about the same.
The conventional wisdom regarding Social Security is based on a fundamental misunderstanding of how the system does—and does not—work. Nobel laureate and Hoover fellow Milton Friedman explains why it is time to end Social Security as we know it.
The journalist Michael Barone recently summed up the conventional wisdom about reforming Social Security: “The content of the reform is fairly clear—individual investment accounts to replace part of the government benefits financed by the payroll tax, later retirement ages, adjusted cost of living increases,” he wrote. And, he added, “suddenly the money to pay for the costs of transition is at hand, in the form of a budget surplus.”
I have italicized “part” and “costs of transition” because they epitomize key defects in conventional wisdom.
Social Security has become less and less attractive as the number of current recipients has grown relative to the number of workers paying taxes, an imbalance that will only get bigger. That explains the widespread support for individual investment accounts. Younger workers, in particular, are skeptical that they will get anything like their money’s worth for the Social Security taxes that they and their employers pay. They believe they would do much better if they could invest the money in their own 401(k) or the equivalent.
But if that is so, why replace only part and not all of government benefits? The standard explanation is that this is not feasible because payroll taxes—or part of them—are needed to pay benefits already committed to present and future retirees. That is how they are now being used, but there is nothing in the nature of things that requires a particular tax to be linked to a particular expenditure.
In 1964, Barry Goldwater was much reviled for suggesting that participation in Social Security be voluntary. I thought it was a good idea then. I still think so.
The link between the payroll tax and benefit payments is part of a confidence game to convince the public that what the Social Security Administration calls a social insurance program is equivalent to private insurance, in that, in the Administration’s words, “the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.”
Balderdash. Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of the government. When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses—what supporters call “a compact between the generations” and opponents call a Ponzi scheme.
The present discounted value of the promises embedded in the Social Security law greatly exceeds the present discounted value of the expected proceeds from the payroll tax. The difference is an unfunded liability variously estimated at from $4 trillion to $11 trillion—or from slightly larger than the funded federal debt that is in the hands of the public to three times as large. For perspective, the market value of all domestic corporations in the United States at the end of 1997 was roughly $13 trillion.
To see the phoniness of “transition costs” (the supposed net cost of privatizing the current Social Security system), consider the following thought experiment: As of January 1, 2000, the current Social Security system is repealed. To meet current commitments, every participant in the system will receive a government obligation equal to his or her actuarial share of the unfunded liability.
For those already retired, that would be an obligation—a Treasury bill or bond—with a market value equal to the present actuarial value of expected future benefits minus expected future payroll taxes, if any. For everyone else, it would be an obligation due when the individual would have been eligible to receive benefits under the current system. And the maturity value would equal the present value of the benefits the person would have been entitled to, less the present value of the person’s future tax liability, both adjusted for mortality.
The result would be a complete transition to a strictly private system, with every participant receiving what the current law promises. Yet, aside from the cost of distributing the new obligations, the total funded and unfunded debt of the United States would not change by a dollar. There are no “costs of transition.” The unfunded liability would simply have become funded. The compact between the generations would have left as a legacy the newly funded debt.
How would that funded debt be paid when it comes due? By taxing, borrowing, creating money, or reducing other government spending. There are no other ways. There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part. Yet that is the implicit assumption of those who argue that the “costs of transition” mean there can be only partial privatization.
The payroll tax is a bad tax: a regressive tax on productive activity. It should long since have been repealed. Privatizing Social Security would be a good occasion to do so. Should a privatized system be mandatory? The present system is; it is therefore generally taken for granted that a privatized system must or should be as well.
The economist Martin Feldstein, in a 1995 article in the Public Interest, argued that contributions must be mandatory for two reasons: “First, some individuals are too shortsighted to provide for their own retirement,” he wrote. “Second, the alternative of a means-tested program for the aged might encourage some lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.”
The paternalism of the first reason and the reliance on extreme cases of the second are equally unattractive. More important, Professor Feldstein does not even refer to the clear injustice of a mandatory plan.
The most obvious example is a person with AIDS, who has a short life expectancy and limited financial means, yet would be required to use a significant fraction of his or her earnings to accumulate what is almost certain to prove a worthless asset.
More generally, the fraction of a person’s income that it is reasonable for her or him to set aside for retirement depends on that person’s circumstances and values. It makes no more sense to specify a minimum fraction for all people than to mandate a minimum fraction of income that must be spent on housing or transportation. Our general presumption is that individuals can best judge for themselves how to use their resources. Mr. Feldstein simply asserts that in this particular case the government knows better.
In 1964, Barry Goldwater was much reviled for suggesting that participation in Social Security be voluntary. I thought that was a good idea then; I still think it is. I find it hard to justify requiring 100 percent of the people to adopt a government-prescribed straitjacket to avoid encouraging a few “lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.” I suspect that, in a voluntary system, many fewer elderly people would qualify for the means-tested amount from imprudence or deliberation than from misfortune.
I have no illusions about the political feasibility of moving to a strictly voluntary system. The tyranny of the status quo and the vested interests that have been created are too strong. I believe, however, that the ongoing discussion about privatizing Social Security would benefit from paying more attention to fundamentals rather than dwelling simply on the nuts and bolts of privatization.
Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, was a senior research fellow at the Hoover Institution from 1977 to 2006. He passed away on Nov. 16, 2006. He was also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and a member of the research staff of the National Bureau of Economic Research from 1937 to 1981.
Reprinted with minor editorial changes from the New York Times, January 11, 1999, from an article entitled “Social Security Chimeras.” Reprinted by permission.
Available from the Hoover Press is The Essence of Friedman, a volume of essays by the Nobel laureate economist. Also available is Facing the Age Wave, David Wise, editor. To order, call 800-935-2882.
Congressman Paul Ryan is probably the hottest name in Washington right now. 50% of the people love him and the rest hate him.
Americans for Prosperity hosted a Social Security Reform Roundtable with Congressman Paul Ryan. Part 1 of 3.
“Provides tax breaks for the wealthy”
False charges about Roadmap and our responses: – The proposed simplified tax code retains its progressivity, and cleans out the tangled web of tax deductions and credits that are disproportionately used by the wealthy. The tax base is broadened so that rates can be lowered. It also offers generous standard deductions so that a middle-income family of four pays no taxes on the first $39,000 of its income. More important, the business-tax changes in the Roadmap would deliver what all Americans seek at this time — increased job opportunities and higher economic growth.
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Here is part of the series I am doing on “Famous Arkansans.” Wayne Jackson grew up in West Memphis and performed on some famous songs like this one below:
Music video from the new DVD
‘Dreams To Remember: The Legacy of Otis Redding’
by Reelin’ In The Years Productions
VISIT: http://reelinintheyears.com/
This DVD features 16 complete performances by Otis along with brand new interviews with Stax musicians Steve Cropper, Wayne Jackson, Stax Records founder Jim Stewart and Reddings wife Zelma. Release date Sept 18, 2007.
Music video Directed & Edited by Bob Sarles
Produced by Ravin’ Films
VISIT: http://ravinfilms.com/
Otis Redding wrote this song while living on a houseboat in Sausalito on the San Francisco Bay. We discovered the actual spot where Otis’ housboat was berthed, and shot new Super8 footage from the spot for use in this video. Thanks to Anne Garfield, Joel Selvin and Bill Belmont. Otis recorded this song shortly before his tragic death. Steve Cropper finished production on the song after Otis’ plane went down. Released posthumously, it was Otis’ biggest hit ever. Enjoy!
Wayne Jackson has played with all the greats from Aretha Franklin, Otis Redding, Neil Diamond to Elvis Presley. Playing with The Memphis Horns, Wayne’s sweet trumpet is one of the most recognised soulful sounds in the last 50 years of pop music. He has played on over 300 Number 1 records and still is one of the nicest people you could ever meet.
Wayne Jackson knew Elvis from an early age, and not only played on some of Elvis’ greatest songs but was also a visitor to Graceland and has some great insights into music and the man.
First some essential Memphis musical background.
Born in Memphis and raised across the river Wayne Jackson’s love of music began with a guitar. But one night his mother came home with a trumpet for her 11 year-old son. “I opened up the case, and it smelled like oil and brass. I loved that, so I put it together, blew, and out came a pretty noise. My first taste of Sweet Medicine.” The rest is music history.
By 12th grade Wayne Jackson found himself playing with a group called The Mar-Keys. They had a number one instrumental smash called, ‘Last Night.’ It was 1961. What followed was a magical ride making music history with Otis Redding, Sam & Dave, Rufus Thomas, Isaac Hayes, all the soul greats. In 1969, Wayne and sax man, Andrew Love, became “The Memphis Horns” and found themselves working with a host of stars such as Neil Diamond, Aretha Franklin, B.J. Thomas and Elvis Presley.
EIN’s Piers Beagley was fortunate to meet Wayne Jackson and to spend some time with him chatting about soul music, life and Elvis.
EIN – Thanks for sparing some of your valuable time & talking to us.
Wayne Jackson – You know that I’ve been down there to Australia several times & I love it. If it wasn’t for family over here I could get lost down there!
EIN – You’ve done a lot of touring in your time. I have recently been watching some of those great STAX shows of you in Europe. They are sensational.
W.J – Oh man! We were 25 years old. Otis Redding, me & Andrew Love & Booker T & the MGs. We’d never been to Europe before and me being a country boy from the sleepy, cotton-town of West Memphis (Arkansas), even Memphis was a big deal. I had never been on a jet plane before and we had the biggest time you could imagine. But it was so hard to get any sleep there was always something to do. A lot of times we all felt like The Beatles ‘cos people were frantic to see us. To us it was just “family” but we had craziness & screaming fans all along the way. It was sure an eye opener.
EIN – Who were the original Stax horn section when you were the Mar-keys?W.J – Originally it was actually me & Andrew Love & Floyd Newman but Floyd dropped out ‘cos of College obligations. Joe Arnold who is a great saxophone player used to play with us too.Right: Wayne Jackson, Andrew Love. The sort after 1995 LP, “The Memphis Horns & Special Guests”.
EIN – Before you worked with Elvis you worked also on an incredible number of classic Memphis songs both at Stax and Chips Moman’s American Studios.
W.J – It’s a shame that they tore down both those original studios. American Studios is a parking lot now! We’ve been going through the RIAA website and we’ve found 60 platinum rated records that I played on that the record companies haven’t awarded me yet!
In the end I’ll have over One Hundred platinum records and most of them were done at American Studios. Andrew and I reckon that as The Memphis Horns we have performed on over 300 number One singles!We were kids and we worked 7 days & 7 nights a week, even Christmas. We did that for about 10 years. We only got paid strictly Union rates. Sometimes we might only make $48! Eventually we were put on a staff salary that made up for it.(Left: Wayne Jackson in soulful action)
EIN – It seems crazy that your horn sound is so identifiable in all those records yet you got less than $50!
W.J – Luckily Wilson Pickett’s ‘Land of A Thousand Dances’ was General Motors theme song back in summer 2002 and so I made several thousand dollars that year, although I only got paid $65 to record it initially!
EIN – There’s a very scary story about how an Otis Redding overdub saved your life?
W.J – I remember that week (December 8th 1967) so well because I had gone out with Otis to Hernando’s Hideaway the Thursday night and he was such a nice young man – and just 2 days later he was dead. We had just worked on ‘Dock Of The Bay’ and Otis was going out on the road with his touring band The Barkays to do a live album. Andrew & I were supposed to go out to beef-up their sound but we had to stay and do the overdubs on ‘Dock Of The Bay’. So I was really supposed to be on that plane that killed Otis and the band – but having to stay back for the overdubs on ‘Dock Of The Bay’ saved my life!
Over the past decade, Congresses and Presidents haveundertaken a
surge of spending that has accelerated America’s speed along the road to
economic ruin. Since 2000, non-defense discretionary outlays have expanded 50
percent faster than inflation. Antipoverty spending has risen 83 percent faster
than inflation, and other programs have grown rapidly. Despite multiple
government audits that have shown many programs to be duplicative or
ineffective, no significant federal program has been eliminated in more than a
decade. Government continues to grow, financed by taxes on Americans and an
explosion of borrowing that is imposing huge additional burdens on future
generations.
Thus, although the major entitlement programs are the primary driver of
long-term spending and debt, Congress must take tough action on discretionary
programs and smaller entitlement programs to reach a balanced budget and ensure
that federal spending is smaller, more effective, and more efficient.
Under the Heritage plan, non-defense discretionary spending—appropriated
programs such as foreign aid, K–12 education, transportation, health research,
housing, community development, and veterans health care, which account for 4.5
percent of GDP—is reduced to 2.0 percent of GDP by 2021. These reforms will
reduce the burden of government, thereby empowering families and entrepreneurs
and promoting economic prosperity.
In addition, antipoverty spending is reformed. Obamacare is repealed, as
noted earlier, and replaced with an alternative solution to uninsurance and high
costs. Agriculture and education programs are structurally reformed. The central
goal for defense is to guarantee national security as prudently and economically
as possible. With improvements in efficiency, we estimate that defense needs
will require spending approximately 4 percent of GDP for the foreseeable
future.
Rather than across-the-board spending reductions, which would not set true
priorities for government, the Heritage plan follows six guidelines in designing
reforms:
The federal government should focus on performing a limited
number of appropriate governmental duties well while empowering state and local
governments, which are closer to the people, to address local needs creatively
in such areas as transportation, justice, job training, the environment, and
economic development.
Functions that the private sector can perform more efficiently
should be transferred to the private sector.
Duplicative programs should be consolidated both to save money
and to improve government assistance.
Federal programs should more precisely target those who are
actually in need, which means reducing aid to large businesses and upper-income
individuals who do not need taxpayer assistance and enforcing program
eligibility rules better.
Outdated and ineffective programs should be eliminated.
Waste, fraud, and abuse should be cleaned up wherever found.
By following these six guidelines, the Heritage plan produces a more
effective and efficient government and promotes stronger economic growth.
The government solution to a problem is usually as bad as the problem. Milton Friedman
The Debt Bomb: A Decade of DC Spending is Driving America Closer to an Economic Apocalypse
Alexis Garcia reports on America’s exploding debt. Experts blame entitlements like Social Security and government spending. But what is the solution? Can we raise taxes without crushing the economy and the middle class? Does Obama really want to lower the debt, or does he support continued deficit spending? See interviews with Douglas Holtz-Eakin, Brian Riedl, Jason Peuquet and former Congressman Ernest Istook (R-OK).
As Rose wrote in our memoirs, “As we look back at the events chronicled in this chapter, it all seems like something of a fairy tale. Who would have dreamed that after retiring from teaching, Milton would be able to preach the doctrine of human freedom to many millions of people in countries around the globe through television, millions more through our book based on the television program, and countless others through videocassettes” (p. 503).
Monetary Trends in the United States and the United Kingdom, published in 1982, was the final major product of a collaboration with Anna J. Schwartz under the auspices of the National Bureau of Economic Research that lasted more than three decades. Money Mischief (Harcourt Brace Jovanovich, 1992) collects assorted pieces of monetary history, some of which I had published elsewhere, some of which appear first in this book.
I have continued to be active in public policy since 1977. I continued my tri-weekly column in Newsweek until it was terminated in 1983. Since then, I have published numerous op-eds in major newspapers. I served as an unofficial adviser to Ronald Reagan during his candidacy for the presidency in 1980, and as a member of the President’s Economic Policy Advisory Board during his presidency. In 1988, President Reagan awarded me the Presidential Medal of Freedom and in the same year I was awarded the National Medal of Science.
We have traveled extensively since 1977, including a trip through Eastern Europe in 1990, where we filmed a documentary on former Soviet satellites. The documentary was included in a shortened reissue of Free to Choose.
Perhaps the most notable foreign travel consisted of three trips to China: one in 1980 when I gave a series of lectures under the auspices of the Chinese government; one in 1988 when I attended a conference in Shanghai on Chinese economic development and had a fascinating session in Beijing with Zhao Ziyang, at the time, the General Secretary of the Communist Party, deposed a few months later for his unwillingness to approve the use of force on Tiananmen Square; and one in 1993 when I traveled with a group of Chinese friends from Hong Kong throughout the country. The three visits covered a period of revolutionary economic growth and development, the first stage of a shift from an authoritarian, centrally planned economy to a largely free market economy.
Ever since the 1950s, Rose and I have been interested in the promotion of parental choice in schooling through the use of vouchers. Finally, in 1996, when it became clear that our personal involvement would have to be limited, we established a foundation, The Milton and Rose D. Friedman Foundation devoted to promoting parental choice in schooling. We were fortunate in being able to persuade Gordon St. Angelo to serve as president. He has done an outstanding job. Progress toward our objective of universal vouchers has been distressingly slow, but there has been progress. The pace of progress shows every sign of speeding up, and our foundation has made a significant contribution to that progress.
In 1998, the University of Chicago Press published our memoirs, Milton and Rose D. Friedman, Two Lucky People.
Investing Social Security funds in the stock market would be a fine idea, wouldn’t it? President Clinton thinks so. Nobel laureate and Hoover fellow Milton Friedman thinks not.
President Clinton has proposed that a quarter of the funds set aside for Social Security be invested in the stock market—a truly radical plan…
Suppose the president’s proposed policy had been followed in its most extreme form from the outset of Social Security in 1937 (i.e., that the whole excess of Social Security tax receipts over Social Security benefit payments, not just one-quarter, had been invested in the stock market). Offhand, it looks as if the trust fund would own only about 5 percent of all domestic corporations ($656 billion out of $13 trillion).
But that is too simple. Most of the accruing funds would have been invested at far lower stock prices than those that prevailed at the end of 1997. Suppose that stock prices, dividend yields, Social Security tax receipts, and Social Security benefit payments had all been what they were—that is, not affected by the investment of Social Security funds in stocks instead of government bonds. On that assumption, the trust fund at the end of 1997 would have totaled not $656 billion but more than ten times as much, approximately $7 trillion. In that case, the Social Security trust fund would own more than half of all domestic corporations! To return to my socialist fantasy, full funding would long since have brought complete socialism.
That too is too simple. Neither stock prices nor other economic magnitudes could have behaved as they actually did, with so much extra money flowing into the market. But what this calculation demonstrates is (1) the widely recognized fact of how much better equity stocks are as an investment than government bonds and (2) how seriously the government purchase of private securities would threaten our freedom.
Have we not learned from the experience of the past century that private property is the key bulwark of personal freedom? Has that experience not shown how dangerous it is to transfer a larger and larger fraction of the productive assets of the country into the hands of a government bureaucracy?
If the corresponding sums had been accumulated by private individuals and not used to finance government spending, they would have been a real addition to the nation’s capital and not just a bookkeeping entry. Those sums would have been invested in ways citizens or their advisers chose. The end result would have been more productive investment, a larger stream of income, and a freer, more responsible, more productive society.
Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, was a senior research fellow at the Hoover Institution from 1977 to 2006. He passed away on Nov. 16, 2006. He was also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and a member of the research staff of the National Bureau of Economic Research from 1937 to 1981.
Available from the Hoover Press is the videotape “Social Insecurity: Reforming Social Security,” an episode of the weekly television program Uncommon Knowledge, jointly produced by the Hoover Institution and the San Jose PBS affiliate KTEH.
By Associated Press, Updated: Tuesday, June 14, 4:35 PM
WASHINGTON — The Social Security Administration made $6.5 billion in overpayments to people not entitled to receive them in 2009, including $4 billion under a supplemental income program for the very poor, a government investigator said Tuesday.
In all, about 10 percent of the payments made by the agency’s Supplemental Security Income program were improper, said Patrick P. O’Carroll Jr., the inspector general for Social Security. The program has strict limits on income and assets, and most of the overpayments went to people who did not report all their resources, O’Carroll said.
Error rates were much smaller for retirement, survivor and disability benefits, which make up the overwhelming majority of Social Security payments, O’Carroll told a congressional panel.
“By any standard, the scope of these problems is considerable,” said Rep. Charles Boustany, R-La., chairman of the House Ways and Means Oversight subcommittee. “Regardless of whether a payment occurs because of simple error or outright fraud, improper payments harm Social Security programs in the long term, jeopardizing benefits for those who may need them in the future. They also cost taxpayers billions of dollars each year.”
Social Security also made nearly $1.5 billion in underpayments, raising the total amount of improper payments to $8 billion in the 2009 budget year, O’Carroll said.
With lawmakers working to reduce soaring budget deficits, efforts to reduce improper government payments are getting attention in Congress and the White House. In 2009, President Barack Obama directed federal agencies to reduce improper payments, and last year, Congress set a goal of reducing the payments by $50 billion by 2012.
Throughout the federal government, improper payments totaled $125 billion last year, up from $110 billion in 2009, O’Carroll said. In 2009, only two other agencies — the Departments of Health and Human Services, and Labor — had more improper payments than Social Security, he said.
On Tuesday, two Ways and Means subcommittees held a joint hearing on overpayments by Social Security. The agency has improved the accuracy of its payments in each of the past three years and is working on more improvements, Carolyn W. Colvin, the agency’s deputy commissioner, said at the hearing.
“We pay nearly 60 million Americans who deserve to receive their benefits timely and accurately, and we deliver on that responsibility in nearly all cases,” Colvin said. “We are committed to minimizing improper payments and protecting program dollars from waste, fraud and abuse. In keeping with President Obama’s vision, we are also open and transparent about our improper payment situation and our efforts to improve that situation.”
Colvin said Social Security has been increasing the number of reviews it completes each year to make sure beneficiaries still meet income and medical requirements. The agency also has stepped up the use of technology to make sure recipients don’t exceed income or asset limits.
Social Security’s finances face regular scrutiny because the trust funds that support the massive retirement and disability program are projected to run out of money by 2036, unless Congress acts to shore up the program. At that point, Social Security would collect enough in payroll taxes to pay about 75 percent of benefits.
Senator John Boozman campaigning at Grady Fish Fry in August of 201o. Here seen with Sherwood Haisty Jr. _____________________________________________ My sons Wilson (on right) and Hunter went to California and visited Yosemite National Park with our friend Sherwood Haisty Jr. (Sherwood on left) They were there from March 21 to March 27. In his article “Harry let […]
My sons Wilson (on right) and Hunter (on left) went to California and visited Yosemite National Park with our friend Sherwood Haisty Jr. March 21-27. Here they are standing in front of the tallest waterfall in North America President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting […]
HALT:HaltingArkansasLiberalswithTruth.com In 2003 José Piñera, President of the International Center for Pension Reform and Distinguished Senior Fellow of the Cato Institute, gave this conference warning the upcoming crisis of the west. For more information about José Piñera’s ideas and Pension Reform visit http://www.josepinera.com or http://www.pensionreform.org Social Security Series Part 6 Max Brantley on his Arkansas […]
HALT:HaltingArkansasLiberalswithTruth.com George Bush discusses his plans to privatize Social Security. Social Security Series Part 5 John Brummett in his article “Boozman: Superman or Superficial?” (Arkansas Times, Sept 30, 2010) asserted, “that to take money out of Social Security and let individuals risk blowing it with bad investments would invite the very ruination of this vital […]
HALT:HaltingArkansasLiberalswithTruth.com Ron Paul’s radio address Dec 27, 2010 on Social Security Social Security Series Part 4 Ron Paul in his radio address of Dec 27, 2010 noted: But millions of Americans now realize that the status quo is an illusion that will not last even another 10 or 20 years. The federal government cannot continue […]
HALT:HaltingArkansasLiberalswithTruth.com Debate on should the cap be raised on Social Security Payroll Taxes on Fox News. Social Security Series Part 3 Basically the social security system in the USA has been in such bad shape because of this pay as you go system that there is no way to raise taxes enough to pay all […]
HALT:HaltingArkansasLiberalswithTruth.com Social Security Series Part 2 Glenn Beck on Social Security with Chris Edwards, Director of Tax Policy, Cato Institute Max Brantley on the Arkansas Times Blog on Sept 3, 2010 (“Boozman’s aim on Social Security,”) asserted, “John Boozman has indicated he believes Social Security is unsustainable and needs to be changed by opening the […]
HALT:HaltingArkansasLiberalswithTruth.com Social Security Series Part 1 Michael Tanner, a senior fellow at the CATO institute, explains that the rate of return on social security will be much lower for todays youth. Ernest Dumas in his article “Back to 1936,” (Ark Times, Dec 23, 2010), notes, “Now the Republican Party has retreated to 1936, when it […]
Author Biography Eric Schurenberg is Editor-in-Chief of BNET.com and Editorial Director of CBS MoneyWatch.com. Previously, Eric was managing editor of MONEY. As managing editor, he expanded the editorial focus to new interests including real estate, family finance, health, retirement, and the workplace. Prior to MONEY, Eric was deputy editor of Business 2.0. He was also […]
Milton Friedman – The Social Security Myth Using Social Security as his prime example, Professor Friedman explodes the myth that the major expansions in government resulted from popular demand. In a speech delivered more than 30 years ago, he directly relates this dynamic to today’s health care debate. http://www.LibertyPen.com Milton Friedman Born July 31, 1912 […]
What is the future of Social Security and Medicare? Congresswoman Virginia Foxx talks with Alison Fraser of the Heritage Foundation about the state of Social Security and Medicare. “Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by Stuart Butler, Ph.D. , Alison […]
Author Biography Eric Schurenberg is Editor-in-Chief of BNET.com and Editorial Director of CBS MoneyWatch.com. Previously, Eric was managing editor of MONEY. As managing editor, he expanded the editorial focus to new interests including real estate, family finance, health, retirement, and the workplace. Prior to MONEY, Eric was deputy editor of Business 2.0. He was also […]
Author Biography Eric Schurenberg is Editor-in-Chief of BNET.com and Editorial Director of CBS MoneyWatch.com. Previously, Eric was managing editor of MONEY. As managing editor, he expanded the editorial focus to new interests including real estate, family finance, health, retirement, and the workplace. Prior to MONEY, Eric was deputy editor of Business 2.0. He was […]
Author Biography Eric Schurenberg is Editor-in-Chief of BNET.com and Editorial Director of CBS MoneyWatch.com. Previously, Eric was managing editor of MONEY. As managing editor, he expanded the editorial focus to new interests including real estate, family finance, health, retirement, and the workplace. Prior to MONEY, Eric was deputy editor of Business 2.0. He was […]
Author Biography Eric Schurenberg is Editor-in-Chief of BNET.com and Editorial Director of CBS MoneyWatch.com. Previously, Eric was managing editor of MONEY. As managing editor, he expanded the editorial focus to new interests including real estate, family finance, health, retirement, and the workplace. Prior to MONEY, Eric was deputy editor of Business 2.0. He was […]
My sons Wilson and Hunter (on left) visited Yosemite National Park with Sherwood Haisty Jr. (on right) March 21 to March 27th. In his article “Harry let us down,” (Arkansas News Bureau, April 4, 2011) John Brummett observes: The liberal is correct when he says Social Security is a separate insurance program that is solvent. […]
My sons Wilson and Hunter (on left) went to California and visited Yosemite National Park with our friend Sherwood Haisty Jr. (Sherwood on right) They were there from March 21 to March 27. Here you can see all the snow they had to deal with. In his article “Harry let us down,” (Arkansas News Bureau, […]
On the Arkansas Times Blog on June 11, 2011 the person going by the username Jake de Snake noted,”Current empirical evidence indicates that the American welfare is successful in reducing poverty, inequality and mortality considerably. Public pensions, for instance, are estimated to keep 40% of American seniors above the poverty line.”
The conventional wisdom regarding Social Security is based on a fundamental misunderstanding of how the system does—and does not—work. Nobel laureate and Hoover fellow Milton Friedman explains why it is time to end Social Security as we know it.
The journalist Michael Barone recently summed up the conventional wisdom about reforming Social Security: “The content of the reform is fairly clear—individual investment accounts to replace part of the government benefits financed by the payroll tax, later retirement ages, adjusted cost of living increases,” he wrote. And, he added, “suddenly the money to pay for the costs of transition is at hand, in the form of a budget surplus.”
I have italicized “part” and “costs of transition” because they epitomize key defects in conventional wisdom.
Social Security has become less and less attractive as the number of current recipients has grown relative to the number of workers paying taxes, an imbalance that will only get bigger. That explains the widespread support for individual investment accounts. Younger workers, in particular, are skeptical that they will get anything like their money’s worth for the Social Security taxes that they and their employers pay. They believe they would do much better if they could invest the money in their own 401(k) or the equivalent.
But if that is so, why replace only part and not all of government benefits? The standard explanation is that this is not feasible because payroll taxes—or part of them—are needed to pay benefits already committed to present and future retirees. That is how they are now being used, but there is nothing in the nature of things that requires a particular tax to be linked to a particular expenditure.
In 1964, Barry Goldwater was much reviled for suggesting that participation in Social Security be voluntary. I thought it was a good idea then. I still think so.
The link between the payroll tax and benefit payments is part of a confidence game to convince the public that what the Social Security Administration calls a social insurance program is equivalent to private insurance, in that, in the Administration’s words, “the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.”
Balderdash. Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of the government. When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses—what supporters call “a compact between the generations” and opponents call a Ponzi scheme.
The present discounted value of the promises embedded in the Social Security law greatly exceeds the present discounted value of the expected proceeds from the payroll tax. The difference is an unfunded liability variously estimated at from $4 trillion to $11 trillion—or from slightly larger than the funded federal debt that is in the hands of the public to three times as large. For perspective, the market value of all domestic corporations in the United States at the end of 1997 was roughly $13 trillion.
To see the phoniness of “transition costs” (the supposed net cost of privatizing the current Social Security system), consider the following thought experiment: As of January 1, 2000, the current Social Security system is repealed. To meet current commitments, every participant in the system will receive a government obligation equal to his or her actuarial share of the unfunded liability.
For those already retired, that would be an obligation—a Treasury bill or bond—with a market value equal to the present actuarial value of expected future benefits minus expected future payroll taxes, if any. For everyone else, it would be an obligation due when the individual would have been eligible to receive benefits under the current system. And the maturity value would equal the present value of the benefits the person would have been entitled to, less the present value of the person’s future tax liability, both adjusted for mortality.
The result would be a complete transition to a strictly private system, with every participant receiving what the current law promises. Yet, aside from the cost of distributing the new obligations, the total funded and unfunded debt of the United States would not change by a dollar. There are no “costs of transition.” The unfunded liability would simply have become funded. The compact between the generations would have left as a legacy the newly funded debt.
How would that funded debt be paid when it comes due? By taxing, borrowing, creating money, or reducing other government spending. There are no other ways. There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part. Yet that is the implicit assumption of those who argue that the “costs of transition” mean there can be only partial privatization.
The payroll tax is a bad tax: a regressive tax on productive activity. It should long since have been repealed. Privatizing Social Security would be a good occasion to do so. Should a privatized system be mandatory? The present system is; it is therefore generally taken for granted that a privatized system must or should be as well.
The economist Martin Feldstein, in a 1995 article in the Public Interest, argued that contributions must be mandatory for two reasons: “First, some individuals are too shortsighted to provide for their own retirement,” he wrote. “Second, the alternative of a means-tested program for the aged might encourage some lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.”
The paternalism of the first reason and the reliance on extreme cases of the second are equally unattractive. More important, Professor Feldstein does not even refer to the clear injustice of a mandatory plan.
The most obvious example is a person with AIDS, who has a short life expectancy and limited financial means, yet would be required to use a significant fraction of his or her earnings to accumulate what is almost certain to prove a worthless asset.
More generally, the fraction of a person’s income that it is reasonable for her or him to set aside for retirement depends on that person’s circumstances and values. It makes no more sense to specify a minimum fraction for all people than to mandate a minimum fraction of income that must be spent on housing or transportation. Our general presumption is that individuals can best judge for themselves how to use their resources. Mr. Feldstein simply asserts that in this particular case the government knows better.
In 1964, Barry Goldwater was much reviled for suggesting that participation in Social Security be voluntary. I thought that was a good idea then; I still think it is. I find it hard to justify requiring 100 percent of the people to adopt a government-prescribed straitjacket to avoid encouraging a few “lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.” I suspect that, in a voluntary system, many fewer elderly people would qualify for the means-tested amount from imprudence or deliberation than from misfortune.
I have no illusions about the political feasibility of moving to a strictly voluntary system. The tyranny of the status quo and the vested interests that have been created are too strong. I believe, however, that the ongoing discussion about privatizing Social Security would benefit from paying more attention to fundamentals rather than dwelling simply on the nuts and bolts of privatization.
Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, was a senior research fellow at the Hoover Institution from 1977 to 2006. He passed away on Nov. 16, 2006. He was also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and a member of the research staff of the National Bureau of Economic Research from 1937 to 1981.
Reprinted with minor editorial changes from the New York Times, January 11, 1999, from an article entitled “Social Security Chimeras.” Reprinted by permission.
Available from the Hoover Press is The Essence of Friedman, a volume of essays by the Nobel laureate economist. Also available is Facing the Age Wave, David Wise, editor. To order, call 800-935-2882.
In 1945, I joined George Stigler at the University of Minnesota, from which he had been on leave. After one year there, I accepted an offer from the University of Chicago to teach economic theory, a position opened up by Jacob Viner’s departure for Princeton. Chicago has been my intellectual home ever since. At about the same time, Arthur Burns, then director of research at the National Bureau, persuaded me to rejoin the Bureau’s staff and take responsibility for their study of the role of money in the business cycle.
The combination of Chicago and the Bureau has been highly productive. At Chicago, I established a “Workshop in Money and Banking”. which has enabled our monetary studies to be a cumulative body of work to which many have contributed, rather than a one-man project. I have been fortunate in its participants, who include, I am proud to say, a large fraction of all the leading contributors to the revival in monetary studies that has been such a striking development in our science in the past two decades. At the Bureau, I was supported by Anna J. Schwartz, who brought an economic historian’s skill, and an incredible capacity for painstaking attention to detail, to supplement my theoretical propensities. Our work on monetary history and statistics has been enriched and supplemented by both the empirical studies and the theoretical developments that have grown out of the Chicago Workshop.
In the fall of 1950, I spent a quarter in Paris as a consultant to the U.S. governmental agency administering the Marshall Plan. My major assignment was to study the Schuman Plan, the precursor of the common market. This was the origin of my interest in floating exchange rates, since I concluded that a common market would inevitably founder without floating exchange rates. My essay, The Case for Flexible Exchange Rates, was one product.
During the academic year 1953-54, I was a Fulbright Visiting Professor at Gonville & Caius College, Cambridge University. Because my liberal policy views were “extreme” by any Cambridge standards, I was acceptable to, and able greatly to profit from, both groups into which Cambridge economics was tragically and very deeply divided: D.H. Robertson and the “anti-Keynesians”; Joan Robinson, Richard Kahn and the Keynesian majority.
Beginning in the early 1960s, I was increasingly drawn into the public arena, serving in 1964 as an economic adviser to Senator Goldwater in his unsuccessful quest for the presidency, and, in 1968, as one of a committee of economic advisers during Richard Nixon’s successful quest. In 1966, I began to write a triweekly column on current affairs for Newsweek magazine, alternating with Paul Samuelson and Henry Wallich. However, these public activities have remained a minor avocation – I have consistently refused offers of full-time positions in Washington. My primary interest continues to be my scientific work.
In 1977, I retire from active teaching at the University of Chicago, though retaining a link with the Department and its research activities. Thereafter, I shall continue to spend spring and summer months at our second home in Vermont, where I have ready access to the library at Dartmouth College – and autumn and winter months as a Senior Research Fellow at the Hoover lnstitution of Stanford University.
From Nobel Lectures, Economics 1969-1980, Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992
This autobiography/biography was written at the time of the award and first published in the book series Les Prix Nobel. It was later edited and republished in Nobel Lectures. To cite this document, always state the source as shown above.
Question: Dr. Friedman, you have been quoted as saying the Social Security tax is the worst tax on the books and should be abolished. What would you use as a substitute?
Dr. Friedman: First, you must understand that the Social Security system is not an insurance system. The taxes that people are paying under the system are not in any relevant sense financing the benefits they themselves will ultimately receive. The Social Security system is a combination of a bad tax and a bad expenditure program. I have never heard anybody who would defend either half separately, and taking two bad things and putting them together doesn’t generally make something good. But combining the two, and giving the impression that the system is self-financing, tends to support the fiction that Social Security is really an insurance contract. It’s not an insurance system at all. What it is a scheme whereby people today are paying taxes today to provide payments and benefits to other people today. There is a relationship between the amount beneficiaries receive and the amount they themselves pay, but that relationship is very small. Insofar as there is that relationship, you can justify an element of payroll tax; but insofar as a large part of Social Security benefits are properly to be understood as subsidies, welfare payments, there is no justification for financing them out of a payroll tax. In my opinion, if you are going to finance them, they should come out of federal revenues.
Now you will say to me, “Oh, but that’s “terrible. Does that mean that you’re proposing that we increase other taxes?” No! Let me go back to the fundamental principle: Government is going to spend whatever the tax system will raise plus a little more – lately a good deal more. The only effective way to keep down government spending is 10 keep down the amount of money available to government to spend. There is no other way you can do it. The effect of giving the impression that Society Security is an insurance system by using the payroll tax, and implying that what each individual pays is linked to what he receives – the effect of that has been to make the American people willing to bear a larger tax loan than they otherwise would bear. I argue the other way: Reduce taxes whenever you can! What you should worry about is total spending. If you reduce the payroll tax and throw the burden on the general tax level, that will be an effective way of stopping even worse programs.
In 1977, when I reached the age of 65, I retired from teaching at the University of Chicago. At the invitation of Glenn Campbell, Director of the Hoover Institution at Stanford University, I shifted my scholarly work to Hoover where I remain a Senior Research Fellow. We moved to San Francisco, purchasing an apartment in a high-rise apartment building in which we still reside. The transition of my scholarly activities from Chicago to California was greatly eased by the willingness of Gloria Valentine, my assistant at Chicago, to accompany us west. She remains my indispensable assistant.
Hoover has provided excellent facilities for scholarly work. It enabled me to remain productive and an active member of a lively scholarly community.
Initially we continued to spend spring and summer quarters at Capitaf, our second home in Vermont. However, we soon came to appreciate the inconvenience of maintaining homes a continent apart and began to look in California for a replacement for Capitaf. In 1979, we purchased a house on the ocean in Sea Ranch, a lovely community 110 miles north of San Francisco. In 1981, we disposed of Capitaf and began to spend about half the year at Sea Ranch at intervals of a week or so, spread throughout the year, rather than in one solid block. It proved a fine locale for scholarly work. The Internet plus an assistant at Hoover more than made up for the absence of a library near at hand.
After more than two wonderful decades at Sea Ranch, we sold our house to simplify our lives. We now have one home, our apartment in San Francisco.
To return to the 1970s, not long after we arrived in California, Bob Chitester persuaded us to join him in producing a major television program presenting my economic and social philosophy. The resulting effort, spread over three years, proved the most exciting adventure of our lives. The end result was Free to Choose, ten one-hour programs, each consisting of a half-hour documentary and a half-hour discussion. The first of the ten programs appeared on PBS (Public Broadcasting System) in January 1980. Since then, the series has been shown in many foreign countries.
When we agreed to undertake the project, little did Rose and I realize what was involved in producing a major TV series. As a first step, I gave a series of fifteen lectures over a period of nine months at a wide variety of locations. The lectures and question-and-answer sessions were all videotaped to provide the producers with a basis for planning the programs.
The filming began in March 1978 and continued for the next eight months at locations in the United States and around the world, including Hong Kong, Japan, India, Greece, Germany, and the United Kingdom – in the process generating more than six miles of video and audiotape.
Three months after the end of filming, we returned to London to view the documentaries that Michael Latham, our wonderful producer, and his associates had created from that tape and to dub the voice-overs. Another six months passed before we gathered again in Chicago where we filmed the discussion sessions – one of the most stressful weeks I have ever experienced.
One distinguishing feature of the series was that there was no written script. I talked extemporaneously from notes. When we returned to Capitaf from London with the transcripts of the final documentaries, we set to work to convert them to a book to appear simultaneously with the TV program. The book, Free to Choose (Harcourt Brace Jovanovich, 1980) was the bestseller nonfiction book of 1980 and continues to sell well. It has been translated into more than fourteen foreign languages.
Investing Social Security funds in the stock market would be a fine idea, wouldn’t it? President Clinton thinks so. Nobel laureate and Hoover fellow Milton Friedman thinks not.
President Clinton has proposed that a quarter of the funds set aside for Social Security be invested in the stock market—a truly radical plan.
Margaret Thatcher reversed Britain’s drift to socialism by selling off government-owned enterprises. President Clinton now proposes that the U.S. government do precisely the opposite: buy private equities, thereby becoming a part owner of U.S. enterprises.
I have often speculated that an ingenious way for a socialist to achieve his objective in the United States would be to persuade Congress, in the name of fiscal responsibility, to (1) fully fund obligations under Social Security and (2) invest the accumulating reserves in the private capital market by purchasing equity interests in domestic corporations.
Congress has never adopted a policy of fully funding Social Security, but neither has it adopted a strict pay-as-you-go policy. As is Congress’s wont, it has chosen the middle of the road, where cars can hit you from both directions. It has collected more in current taxes than were needed to pay current benefits yet not enough more to equal the future liability that it was incurring. The excess revenue has been spent in the ordinary course of government business.
The trust fund was created to preserve the fiction that Social Security is insurance. The so-called trust fund is actually a massive sleight of hand.
To preserve the fiction that Social Security is insurance, however, federal government interest-bearing bonds of a corresponding amount have been deposited in a so-called trust fund. That is, one branch of the government, the Treasury, has given an interest-bearing IOU to another branch, the Social Security Administration. Each year thereafter, the Treasury gives the Social Security Administration additional IOUs to cover the interest due. The only way that the Treasury can redeem its debt to the Social Security Administration is to borrow the money from the public, run a surplus in its other activities, or have the Federal Reserve print the money—the same alternatives that would be open to it to pay Social Security benefits if there were no trust fund. But the accounting sleight of hand of a bogus trust fund is counted on to conceal this fact from a gullible public.
The Debt Bomb: A Decade of DC Spending is Driving America Closer to an Economic Apocalypse
Alexis Garcia reports on America’s exploding debt. Experts blame entitlements like Social Security and government spending. But what is the solution? Can we raise taxes without crushing the economy and the middle class? Does Obama really want to lower the debt, or does he support continued deficit spending? See interviews with Douglas Holtz-Eakin, Brian Riedl, Jason Peuquet and former Congressman Ernest Istook (R-OK).
Top congressional Republicans said on Sunday they would be open to a compromise on healthcare costs, one of the biggest stumbling blocks in a deal to get the United States’ debt under control.
Representative Paul Ryan, the chairman of the House of Representatives Budget Committee, said he would “absolutely” be willing to negotiate with Democrats, who have hammered his plan to scale back government-run health plans for the poor and the elderly.
With Ryan’s plan headed for likely defeat in the Democratic-controlled Senate, that chamber’s top Republican said it was time for “an adult conversation” on ways to keep healthcare costs under control.
“Let’s just stipulate that nobody is trying to throw Grandma off the cliff,” Senate Republican Leader Mitch McConnell said on “Fox News Sunday.”
Health reform is a top sticking point as the two sides try to hash out a budget deal that would give lawmakers political cover to back an increase in the country’s borrowing authority.
And as the 2012 election season gets underway, it is shaping up to be a top campaign issue as well.
Ryan’s proposal to partially privatize the Medicare health plan for the elderly has already imperiled the presidential hopes of one Republican, Newt Gingrich, who faced a fierce conservative backlash last week after he described it as “right-wing social engineering.”
Polls show that Ryan’s proposed changes are unpopular with voters, and McConnell said he is not urging his fellow Republicans to support it when it comes up for a vote in the Senate this week.
“We have other budgets that Republicans are pushing,” McConnell said. “We’re not going to be able to coalesce behind just one.”
The United States reached its $14.3 trillion debt limit last week, and the Treasury Department says it can stave off a default until early August.
Experts say a default would push the country back into recession and roil markets across the globe.
Republicans and some Democrats say they won’t back a ceiling increase that does not include steps to rein in the debt load, which has more than doubled over the past decade.
In talks led by Vice President Joe Biden, top lawmakers have agreed to at least $150 billion in spending cuts, but that is far short of the $4 trillion in deficit reduction that outside experts say is needed to stabilize the debt over a 10-year span.
On healthcare, the two sides are separated by a gulf of trillions of dollars. Ryan’s plan would save $2.2 trillion by scaling back Medicaid, the government-run health plan for the poor, and repeal President Barack Obama’s signature health reform program, the 2010 Affordable Care Act.
Obama, in turn, has proposed saving $480 billion by accelerating reforms in the program — a non-starter for Republicans who insist it must be repealed.
Speaking on NBC’s “Meet the Press,” Ryan said compromise was possible — reversing an earlier stance that a deal on healthcare would not be reachable until after the election.
“Of course, absolutely,” Ryan said, when asked if he would be open to negotiation. “Of course we would, this is the legislative process. But let me be clear: We are the only ones who have put out a plan.”
Democratic Representative Chris Van Hollen, a participant in the Biden talks, said Washington could find savings by lowering the price the government pays for prescription drugs, rather than scaling back benefits for patients.
Van Hollen repeated Democrats’ contention that any debt-reduction plan requires higher taxes, saying Republicans’ reluctance to consider them forced Ryan to push his unpopular cuts to Medicare and Medicaid.
“You can’t do it with a one-sided, lopsided approach,” he said on “Meet the Press.”
McConnell declined to say on Fox whether more tax revenue would be part of a final deal, but later in the day he reiterated his firm anti-tax stance.
“There will be no tax increases in connection with raising the debt ceiling. We’re talking about spending reductions,” he said in a prepared statement.
The Daily Hatch 