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March 07, 2013 11:39 AM Broadening the Definition of “Entitlement Reform”

By Ed Kilgore

At the New York Times’ Opinionater blog, Tom Edsall makes a very comprehensive case for dealing with the solvency issues of Social Security and Medicare via increasing the dedicated revenues supporting them (partially in the case of Medicare) instead of reducing benefits. And he also aims at pretty sharp “J’Accuse!” at Beltway elites who are obsessed with “entitlement reform” but somehow only see benefit cuts as legitimate ways of accomplishing “reform.”

The basic facts on the regressivity of federal payroll taxes are generally known, but Edsall brings them into sharper relief:

The Medicare and Social Security taxes are jointly known as FICA (for Federal Insurance Contributions Act) — or payroll — taxes. The combined FICA taxes are highly regressive. The non-partisan Tax Policy Center found that the poorest quintile pays a 7.3 percent FICA rate, while the top quintile pays 6.8 percent. The top 1 percent of the income distribution pays a 2 percent rate, and the top 0.1 percent pays just 0.9 percent. In other words, the rate paid by the poorest quintile is 8.1 times as high as the rate paid by the top 0.1 percent.

Simply lifting the cap on the Social Security portion of FICA would entirely solve that program’s funding shortfall for the next 75 years, according to Congressional Budget Office projections cited by Edsall. That would eliminate the egregiously regressive nature of FICA taxes, but wouldn’t exactly “soak the rich,” particularly since these taxes only apply to earned—not investment—income.

Edsall is less specific in the kinds of revenue measures that could be applied to the Medicare portion of the payroll tax, which does not have the arbitrary “cap” applied to Social Security taxes. But he’s right that this whole subject rarely appears in discussions of “entitlement reform.”

As someone who does not consider Social Security and Medicare to be sacrosanct programs progressives are not allowed to consider changing because that represents “playing on the other team’s turf” or some other violation of slippery-slope fears, I find Edsall’s piece important not just because he offers an alternative to benefit cuts—but because he challenges the straitened definition of “entitlement reform” that makes the whole topic inherently partisan and impossibly ideological. Finding ways to reduce health care inflation, which would have a massively beneficial effect on the financing of Medicare, Medicaid, and the entire federal budget, is a form of “entitlement reform.” Boosting payroll taxes is a form of “entitlement reform.” Only when the term stops being ill-disguised code for a particular type of “reforms” favored by conservatives and Beltway deficit hawks from both parties can we have a real discussion on options for maintaining the solvency and effectiveness of the social safety net.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on March 07, 2013 11:54 AM:

    The point for rich Conservatives, was never to "REform" "entitlements (aka: EARNED BENEFITS)" - it was to UN-form them - aka: eliminate them.

    And the rich pundits in the MSM are all for that, since it's no skin off of their defoliated, lotioned, rhinoplastied and carefully powdered and made-up noses.

    They'll never need the money.

    And the poor Conservatives who do, and/or will, are too stupid and ingorant, to see past their own noses.

    They're just reflexively against any and every thing Liberals are for - even if being against it, means cutting off their noses to spite their faces.

    Fear and hatred rule their world.
    But fear for their own fates is always trumped by their hatred of others.

  • DavidNOE on March 07, 2013 12:05 PM:

    In your last paragraph you want the word "straitened," not "straightened."

  • gregor on March 07, 2013 12:11 PM:

    But isn't Obama offering to 'reform' entitlement programs?

    If Obama so much as touch SS and Medicare with a ten foot pole for a GRAND BARGAIN, for a generation or even more, the Republicans will run on the platform of 'The Democrat Party killed Social Security and Medicare'.

    One only hopes that Obama understands that, having faced similar charges on Medicare during the last campaign.

  • Mimikatz on March 07, 2013 12:14 PM:

    The issue is how much one wants to keep taxes on the wealthy low. Especially if "wealthy" includes many doctors and health care industry execs. If the goal of "entitlement reform" is to free up money to keep taxes low, and make no mistake, is is the motivation of many of the elites, who are themselves wealthy, then benefit cuts are all that matters. Only if one is really interested in making the programs solvent do cost-cutting reforms and raisng FICA taxes make sense. in discussing e issue, exposing the true motivation is absolutely essential.

  • Russell Sadler on March 07, 2013 12:18 PM:

    Kevin has been beating this drum (sorry) for several years now and you and he are right, Ed.

    There is nothing about Social Security's solvency that cannot be cured by raising additional revenue.Since the existing FICA taxes are so regressive -- deliberately so -- the obvious alternative is simply raising the ceiling on the income on which the tax is raised. And you and Edsall have again exposed the dirty little secret about that tax. It only applies only to "earned income -- salary and wages. I had to laugh when Mitt Romney said he only made $170,000 in speaking fees during the last campaign as if to say, "I didn't make that much money." He made millions, of course in unearned income -- "investment" income, that he paid a much lower tax rate on and no FICA tax at all.

    As Bill Moyers says, "The system isn't broken. It's rigged.

  • golack on March 07, 2013 12:50 PM:

    Obliged to ride my hobby horse into battle ;)

    Lift cap on payroll side of FICA, apply it to all income, lower overall rate with concomitant increase in medicare/medicaid taxes.

    Lifting cap on employee side will just shift reimbursement to non-taxable means, e.g. stock options, especially if the employee won't benefit by paying more into FiCA.

  • jim filyaw on March 07, 2013 1:00 PM:

    a very point is being missed here. what ryan and company euphemize as "reform" is but a means to an end, that end being the end of social security and medicare and similar programs. adopting the common sense reforms suggested by edsall will never be accepted by the republicans, not because they would not solve the problem, but because they would, and thus perpetuate what they are sworn to destroy.

  • bobatkinson on March 07, 2013 1:13 PM:

    Senator Begich has proposed what could be a brilliant "rope a dope" bill to offer Republicans a chained CPI as they have demanded but one that would only be chained to senior costs and not the entire spectrum of the economy along with removing the payroll cap. In the end benefits may be reduced or the wild inflation rate of senior medical care, drugs etc may actually increase the benefits. Hopefully his bill will get some serious attention now that Ryan is once again throwing out his new/old plan to voucherize Medicare.

  • esaud on March 07, 2013 1:21 PM:

    Robert Reisch had a good piece a while back (sorry, no link) about the cap.

    When SS was reconfigured in the early 80's, 90 percent of all wages fell under the cap. That percentage has fallen by about 10 points to the low 80%'s. In other words, growing income inequality has taken its toll.

    Most income gains have accrued over the SS cap over the last few decades. Instead of framing lifting the cap as soaking the rich, it should be presented as giving the middle class it's share of trickle down.

  • John Reagan on March 07, 2013 1:33 PM:

    I'm all for entitlement reform. Lets cancel the tax credits that profitable companies get, bank bailouts, absurd protectionism for our outrageously high medical industry, and hack an immediate 50% off the defense industry. See how accommodating I can be?

  • Anonymous on March 07, 2013 1:51 PM:

    You would think that doctors and medical-industry types would be all over an increase in taxes devoted to medicare, because it's pretty obvious that without that kind of reform -- i.e. real reform not cuts -- a lot of people simply aren't going to be able to pay. And this is going to lead to medical-industry profits going down in addition to the occasional lynching.

    But the right-wing propaganda effort of the past 30 years has been so effective that ostensibly intelligent people are willing to trash their future livelihood to pay a few percentage points less in current taxes.

  • crosspalms on March 07, 2013 4:36 PM:

    Improving benefits is also reform. Fewer workers today have defined benefit pensions, many if not most companies don't contribute to 401(k) plans, many companies have thrown their pension plans to the government anyway (where'd you get that haircut -- PBGC?). Lower the retirement age, improve the benefits, raise my taxes and lift the cap.

  • janinsanfran on March 07, 2013 8:08 PM:

    The equivalent for Medicare and Medicaid of the obvious expedient of raising the cap to make Social Security solvent is to allow Medicare and Medicaid to bargain with drug companies, hospitals and providers, using the programs' enormous size to bring down prices charged for health necessities.

    If we hadn't already surrendered to plutocrats, these would be on every small "d" democrat's agenda. Why are they unmentionable?

  • Neil Bates on March 08, 2013 12:35 PM:

    Hmmm - to "reform Social Security," how about lift the cap, but don't institute any "means testing" other than just making SS benefits taxable by combination with other income. That would get some of the money back from the more wealthy folks, and in a simple way (ie, by not adding a new complex formula to decide how much one is paid SS to start with), without "messing with the system" by changing overall payment protocols, or switching to the odious chained CPI, etc.