Workers, savers will be ‘too rich’ to draw Medicare, Social Security

My new year’s resolutions are like those of most Americans: get to the gym more often, get my cholesterol count down, eat an apple a day.

Anything to keep the doctor away.

But my goals for good health have nothing to do with an expanding waistline. They have everything to do with the expanding national debt and the crushing unfunded liabilities of the country’s entitlements. They have everything to do with building enough strength to shoulder an ever-increasing tax burden, with knowing the federal government’s promises to my generation and my children will be broken, with knowing I’ll need to work into my seventies to support myself and a welfare state we can’t yet fathom.

The economic meltdown has wiped out years worth of investment gains that savers were counting on to supplement Social Security and Medicare benefits. But those federal programs are in far worse shape than any 401(k) statement.

Medicare is already at the fiscal tipping point — benefit payments were expected to exceed tax collections by the end of 2008. And its so-called “trust fund” — a lock box full of government IOUs signed by congressional piggies — now might be exhausted as early as 2016.

At about that time, Social Security outlays will exceed available tax revenues and force Congress to begin paying back the trillions of dollars it has borrowed over the years, either by borrowing more or raising taxes. The hypothetical Social Security trust fund — also full of IOUs — is expected to run dry in 2040 or 2041, just in time for my 70th birthday.

Less than two years ago, lawmakers spoke forcefully about balancing the federal budget. A handful of brave souls were even willing to engage in bipartisan negotiations to shore up Medicare and Social Security and perhaps make them sustainable through this century.

Today, the deepening recession has everyone in politics and the private sector focusing on week-to-week survival. A balanced budget? The growing list of bailouts and “stimulus” proposals could put next year’s budget deficit at more than $1 trillion, which would be the biggest as a percentage of the economy since World War II.

The national debt likely will top $11 trillion by the end of the month. Lawmakers have no interest in paying it down, but the interest on that debt could cost you and me as much as $500 billion this year — enough to cover the operating budgets of the country’s eight biggest states.

Amid this nearly implausible tide of red ink, Washington’s only current plan to address entitlement insolvency is to continue borrowing and deficit spending. But as any credit card junkie knows, that game ends when monthly minimum payments consume so much income that there isn’t enough left to cover the rest of the bills.

The more Congress borrows, the more the federal government pays in interest, which leaves less revenue to repay entitlement IOUs, which compels Congress to borrow even more. It’s a savage cycle that will quickly move up the programs’ fiscal judgment day.

Medicare and Social Security benefit payments, which already consume about $1 trillion per year, will explode in the coming two decades with the retirement of the baby boomers. In just 10 years, the Government Accountability Office estimates, 76 cents of every federal tax dollar collected will be spent on retirees and retirement health care. There will barely be enough left to cover our growing debt payments, which will leave the Defense Department, the federal justice system and every other agency fighting over couch change.

When you consider the growth of Medicaid, the federal/state health care program for the poor and disabled — and, thanks to the generosity of various state politicians, the middle class — the federal budget could crumble sometime around 2020.

The decades that follow look even worse. The government has promised more than $40 trillion in retirement benefits that it can’t possibly pay.

There is no momentum in Washington for entitlement reform. As the failure of Fannie Mae and Freddie Mac proved, government institutions have to collapse before lawmakers will take steps to fix them.

So how might Washington try to pick up the pieces? Voters won’t stand for a European tax burden, so doubling income and payroll taxes is out of the question. And we know Congress won’t significantly cut federal spending — no matter which party is in charge — by shutting down entire Cabinet departments.

The reform I am planning for — the reason I’m doing extra sit-ups — is the conversion of entitlements into welfare programs. Medicare already has begun means testing to determine premiums. The only way Congress will be able to cope with rising health care costs and a rapidly growing elderly population is to provide benefits exclusively to those who have few assets. Medicare will fold into Medicaid.

The day will soon come when, if you have an annuity, a pension, a series of CDs or a healthy amount of equity in your home, you will be denied Medicare — or at least receive significantly reduced benefits. Economists, political scientists and public health officials are reaching this conclusion, too. By the middle of the century, when each retiree will be supported by only two taxpaying American workers, Social Security will have to follow. Australia, Britain, Sweden and Finland already are moving in this direction.

The ramifications of such a policy change will be staggering. The incentive to save and invest will deteriorate. Families will scramble to hide assets — and blow them when they get sick.

There are still plenty of federal lawmakers who will insist there is no entitlement crisis — I’ve sat across the table from a few of them.

For those 40 and younger, like me, it’s an absolute betrayal — all the debt, all the neglect, all the waste. We’ve been sold out time and again for the next election.

None of us intend to be poor in old age. So our only recourse is to hope we won’t need the federal government’s money or health care. To stay on that treadmill an extra 15 minutes. To do an extra set of bench presses.

Stay healthy. Keep working.

Unlike Washington.

Glenn Cook (gcook@reviewjournal.com) is an editorial writer for the Review-Journal.

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