Published September 13, 2007
According to news accounts, Senator Clinton “lit into” the Bush administration for supposed entitlement indiscretions and for attempts to “undo” Social Security and Medicare. She also announced her opposition to “privatization” of Social Security as well as any benefit adjustments, including changes in the retirement age. On the issue of Medicare, she said the solution was a universal health-care plan and government price setting for prescription drugs, not changes in Medicare’s structure. In sum, she saw no reason to change the programs at all. All of this, of course, was music to her audience’s ears.
And it could very well pay dividends for her. There is no denying the salience of political attacks which play on the fears of seniors, however untrue they may be. President Bill Clinton made his comeback in 1996, in large part, by scaring the public with exaggerated attacks on the Republican plan to trim Medicare spending in the balanced budget. And it is, of course, standard operating procedure for Democratic candidates to accuse their Republican opponents of harboring secret plans to dismantle Social Security. Senator Clinton is simply following this tried-and-true Democratic playbook, while setting herself up as the next great defender of the entitlement status quo.
But Senator Clinton’s pronouncements do naturally lead one to ask: what would she do about mounting entitlement costs? Here, she is on much shakier ground.
Between 2006 and 2020, the population over age 65 will increase by 16 million people. The Congressional Budget Office (CBO) projects that spending on Social Security, Medicare, and Medicaid will increase to about 12-percent of GDP in 2020, up from about 8.5-percent of GDP last year, and that is assuming a relatively benign growth in per capita health-care costs. The Social Security trustees project that the trust funds will run out of reserves in 2041, and Medicare’s trustees estimate the program’s unfunded liability exceeds $70 trillion in present value terms. The pressures from an aging population and rising health-care costs cannot be wished away.
In ruling out even modest reform of the programs, Senator Clinton has signaled that, when pushed, she would choose the only other options available: higher taxes and government rationing of health care.
Senator Clinton would undoubtedly deny that this is what she said. But there really is no other logical conclusion to her remarks.
To divert attention from her own irresponsible position, Senator Clinton tried to argue that Social Security could be made more solvent with a return to “fiscal responsibility.” To bolster her case, she asserted that when her husband left office, the Social Security trust funds were solvent to 2055 and President Bush’s tax cuts had somehow brought that date forward by 14 years. But that is false. In April 2000, the trustees estimated Social Security would go broke in 2037, four years earlier than today’s estimate. The Bush tax cuts did not change any aspect of Social Security revenue or benefits — but did promote strong economic growth. And, of course, President Bush tried in 2005 to put the program on a solvent basis permanently, with progressive changes in the benefit formula. Senator Clinton opposed that effort.
If no benefit adjustments are made in Social Security, the only way to close the financing gap is with a tax increase. The trustees estimate that it would require about a 2-percentage-point increase in the Social Security tax rate, now 12.4-percent of payroll, to keep the trust funds solvent for seventy-five years. For the median income household, that would be a tax increase of about $960 per year.
To slow health-care costs in Medicare, Senator Clinton told her audience that she was returning to the fight she led in 1993 and 1994 by pushing again for a universal health-care plan. Implicit in this approach are government-enforced health spending targets, which in turn require health-care price and supply controls. In every other country with such a system, the result is waiting lists and rationing of care. Still, Senator Clinton made the same “free lunch” sales pitch she made in 1994, saying her approach “lowers costs for everybody, improves quality for everybody, and covers everybody.” Unfortunately for her, the public is likely to have the same reaction this time around: no thanks. Americans continue to instinctively distrust health-care “solutions” which give the government the power to decide when and where they can get health care.
The country is fast approaching the first years of the baby-boom retirement. Those born in 1946 will be eligible for early Social Security retirement in 2008 and gain Medicare coverage in 2011. Political leaders should be preparing the public for the many changes in entitlement programs that will be necessary to ensure they remain affordable.
Unfortunately, comments like those delivered by Senator Clinton are common during election years, and make bipartisan cooperation on entitlement reform nearly impossible.
In this environment, the only way to move the debate forward is to make it clear to the public that there really is no free lunch here. Senator Clinton may promise “no changes in benefits,” but her plan has costs too. In the case of Social Security, there will be a tax increase, and most likely the middle class will pay it. And to keep Medicare costs from rising, she would allow the government to tell some beneficiaries they cannot get the care they seek. Presented with this information, perhaps the public will be open to more sensible reforms.
— James C. Capretta, a Fellow at the Ethics and Public Policy Center, was an associate director at the Office of Management and Budget from 2001 to 2004.