First off, don't mess with payroll taxes. Democrats are pushing to extend this year's cut in payroll taxes. That's a lousy idea.
Payroll taxes support Social Security. The program is totally self-sustaining. Taxes not used to support current retirees are put into the Social Security trust fund, to be saved for future needs -- mainly when the big baby boom generation retires. These surpluses are lent to the U.S. government in the form of special Treasury bonds. They represent real money from real workers, and yes, the U.S. Treasury is obligated to make good on all its borrowings.
Conservative foes of Social Security argue that these Treasury bonds are "worthless pieces of paper" and that the money has already been spent. Why don't you try that with MasterCard? Call up and say, "I don't owe you the $925 I charged last month, because I've already spent it on a new sofa bed." See what happens.
Social Security's enemies are perpetrating a con on America's workers. If they can convince the public that the government doesn't have to pay back what it borrowed from the trust fund, they don't have to raise the income taxes that may be needed to honor that debt obligation.
When Democrats cut payroll taxes, they weaken the basis of Social Security's funding. As already noted, those tax dollars are needed. They also remind the workers providing them that their expected Social Security benefits are not some gift from rich people, but something they've saved for.
On to Medicare. Republicans want to increase means-testing for the program. Amazingly, President Obama says he'll consider it. Means-testing involves having the government look at your income to determine how much of a benefit, if any, you may receive.
The Medicare program does rely heavily on general revenues (in addition to payroll taxes and contributions by beneficiaries). And Medicare's soaring price tag is of great concern. Means-testing could cut the program's costs by reducing the benefits of well-to-do retirees.
What's wrong with that? Plenty. The public's strong support for Medicare rests on its benefiting every income group. When you start cutting benefits for the wealthy, or semi-wealthy, the well-to-do stop caring so much about the program. Medicare becomes more like welfare. In practical terms, it will become more like Medicaid, the government health plan for the poor. Observe the cuts in that.
Medicare already has some means-testing. The better-off pay more for Part B premiums (covering visits to the doctor), and low-income folks pay lower or no premiums for drug coverage. For high-income beneficiaries, Republicans now propose raising those Part B premiums further and increasing their copays.
If you like the Republican plan to turn Medicare into a voucher system -- whereby the elderly are given a check with which to buy health coverage on the private market -- this is a good start. Means-testing will shrink the fan base for Medicare-as-we-know-it. If you want the rich to pay more without undermining Medicare, however, there's a simpler solution: Raise their income tax rates, and leave their benefits alone.
To protect Medicare and Social Security from under-funding or welfare-ization, it's essential that all income groups see themselves as beneficiaries -- and contributors. Remember: A little turn of the wrong screw can shut down an entire factory.
Froma Harrop is a Providence Journal columnist. Her email address is email@example.com.
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