photo: Gerald Martineau/The Washington Post
WASHINGTON POST
Anxiety is rising among House Republicans about a strategy of appeasement toward fiscal hard-liners that could require them to embrace not only the sequester but also sharp new cuts to federal health and retirement programs.
Letting the sequester hit was just the first step in a pact forged in January between conservative leaders and Speaker John A. Boehner (R-Ohio) to keep the government open and the nation out of default. Now comes step 2: adopting a budget plan that would wipe out deficits entirely by 2023.
The strategy runs counter to warnings from prominent Republicans such as Louisiana Gov. Bobby Jindal against becoming “the party of austerity.” Just as GOP lawmakers are tacitly endorsing sequester cuts to the Pentagon, long a sacred cow, they fear the balanced-budget goal will force them to abandon a campaign pledge not to reduce Medicare benefits for those who are now 55 and older.
“I know a number of people who have real concerns about where this is going,” said Rep. Peter T. King (R-N.Y.), who said Medicare cuts targeting people as old as 58 are under discussion.
“One of the last presidents to balance the budget was Herbert Hoover,” King added darkly, referring to the penny-pinching Republican blamed for deepening the Great Depression.
GOP leaders say the strategy has been necessary to persuade their right wing to postpone a fight over the debt ceiling until this summer and to [pass the] bill ...to fund the government through the end of September. The payoff, they say, will be a budget framework that holds the promise of paying down the national debt without higher taxes.
Alan Simpson points his finger at you and your sorry motives. (AP)
WASH. POST HAROLD MEYERSON
To the let’s-cut-entitlements crowd, what’s wrong with America is that seniors are living too high off the hog. With the cost of medical care still rising (though not as fast as it used to), the government is shelling out many more dollars per geezer (DPG) than it is per youngster (DPY). The solution, we’re told, is to bring down DPG so we can boost DPY.
We do indeed need to boost DPY. And we need to rein in medical costs by shifting away from the fee-for-service model of billing and paying. But as for changing the way we calculate cost-of-living adjustments for seniors to keep us from overpaying them — an idea beloved of Bowles, Simpson, Republicans and, apparently, the White House — this may not be such a hot idea, for one simple reason: An increasing number of seniors can’t afford to retire.
Nearly one in five Americans age 65 and over — 18.5 percent — were working in 2012, and that percentage has been rising steadily for nearly 30 years. In 1985, only 10.8 percent of Americans 65 and older were still on the job, and in 1995, that figure was 12.1 percent.
Both good news and bad news have contributed to this increase. The good news is that more seniors both can and want to work than in years past, as health care and medical science have extended their capabilities, and as the share of Americans in desk jobs has increased while the number on the factory floor has shrunk. A 2011 survey by the Society of Actuaries reported that 55 percent of working seniors said they had stayed employed because they wanted to stay active and involved. But the same survey showed that 51 percent were working because they needed the money.
What advocates for reducing Social Security adjustments fail to consider is that corporate America’s shift away from defined-benefit pensions to defined-contribution 401(k) plans — or to no retirement plans at all — has diminished seniors’ non-Social Security income and made the very idea of retirement a far more risky prospect. Today, more than half of U.S. workers have no workplace retirement plan. Of those who do, just 35 percent still have defined-benefit pensions. In 1975, 88 percent of workers with workplace retirement plans had defined-benefit pensions.
The shift from traditional pensions to 401(k)s is one of the main reasons most seniors aren’t able to set aside enough income to guarantee a secure retirement. A 2010 survey by the Federal Reserve found that the median amount saved through 401(k)s by households approaching retirement was $100,000 — not nearly enough to support those households through retirement years, as seniors’ life expectancy increases. And as most Americans’ wages continue to stagnate or decline, their ability to direct more of their income to 401(k)s diminishes even more.
With the eclipse of the defined-benefit pension, Social Security assumes an even greater role in the well-being of American seniors. But advocates of entitlement cuts don’t even discuss the waning of other forms of retirement security: Listening to Alan Simpson, you’d never know that America’s elderly aren’t getting the monthly pension checks their parents got.
And it’s not as if those employers are suffering. Just as U.S. businesses have been able to raise the share of corporate profits to a half-century high by reducing the share of their workers’ wages to a half-century low, so, too, their ability to reduce pension payments has contributed not just to their profits but also to the $1.7 trillion in cash on which they are currently sitting.
So here’s a modest plan to enable seniors to retire when they wish, rather than having to work into their 70s and even beyond: Require employers to put a small percentage of their revenue, and a small percentage of their workers’ wages, into a private, portable, defined-benefit pension plan. To offset the increased costs, transfer the costs of paying for workers’ health care from employers and employees to the government, and pay for the increased costs to the government with the kind of value-added tax that most European nations levy. (The tax burden is higher in Europe, but because the level of benefits is higher as well, the tax has wide public support.)
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What is VAT?
The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union .Value added tax is
- a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services.
- a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
- charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
- collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved.
- paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.
The odds of such a plan being enacted today, of course, are nil. (Then again, the odds of any bill getting through Congress these days are close to nil.) But until we compensate for, or reverse, the abdication of corporate America from any major role in providing its workers with retirement security, we should lay off monkeying with Social Security to reduce the program’s future payments. As for all those cash-drenched chief executives who proclaim that we must cut entitlements, how about they make up the difference by restoring the pensions their companies slashed?
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