September 8, 2013

Charles Lawton: Focus on solving problems, not saving programs

The greatest barrier to serious reform of economic policy is our political tendency to focus on programs rather than problems. The most obvious example is Social Security.

When the program was established in 1933, the average life expectancy beyond its defined retirement age was less than 10 years.

Today, it's over 20 years. That's a structural problem created by progress in health care. Yet attempts to address the problem are attacked as efforts to destroy the program: Don't take away my Social Security!

The same distinction holds true for Medicare, Medicaid, tax reform and scores of other social programs designed under whatever demographic and economic realities held true at that time.

Today, after the demographic and economic realities have changed dramatically -- to some extent because of the success of the programs -- they have become financially unsustainable.

Yet defenders react to proposals to change the programs with the ferocity of their original creators, as if reform were tantamount to destruction: Don't take away my (fill in the blank)!

Such resistance to common sense does a disservice both to the young (who will ultimately bear the consequences of our head-in-the-sand approach) and to the intentions and hopes of the pioneers who created the programs.

It also undermines support for all attempts to ensure the future of any form of social insurance by making those now holding the short end of the stick see it as just another example of crony capitalism -- government serving the interests of some special group who managed to get some special treatment approved in the distant past and are now fighting to keep it: Why shouldn't I take away your Social Security, or Medicare or ... since I'll never get anything from it myself?

Resisting pragmatic reform simply raises the fiscal and political game of chicken to a higher level.

Should the governor close the hospitals or the schools? Who wins in that formulation of our social contract?

The facts are stark when examined directly.

In 2000, personal income in Maine included nearly $2.1 billion in Social Security benefits and nearly $2.3 billion in publicly financed health benefits (Medicare and Medicaid). This total amounted to approximately 99 percent of the $4.4 billion in total federal and state taxes paid by all Maine taxpayers.

Clearly, we in Maine benefit from belonging to a set of federally financed social insurance programs that allow us to share in revenues collected from wealthier states.

By 2011, Maine's personal income included more than $3.7 billion in Social Security benefits (an increase of 80 percent over 2000), and nearly $5.3 billion in public medical benefits (an increase of 132 percent over 2000).

Over the same period, our total personal income increased by only 49 percent, our earned income increased by only 40 percent, and the total amount we paid in federal and state taxes increased by a mere 7 percent.

As a result, the $9 billion many of us received in Social Security and public medical benefits in 2011 amounted to nearly double the nearly $4.7 billion we collectively paid in state and local taxes.

Now we're really benefiting from being part of a federal system!

But how long can we count on those who are working to earn an income ($34 billion in Maine in 2011) to continue to pay what amounts to 26 percent of that income to support these programs?

So far, we've survived with cheap dollars falling from Ben Bernanke's helicopters. But that's no way to continue a social insurance system we clearly need.

It's time to forget romantic (and ideological) remembrances of times and programs past and focus on pragmatic ways to break down incomprehensibly complex programs into manageable problems.

Charles Lawton is chief economist for Planning Decisions Inc. He can be contacted at:

clawton@planningdecisions.com

 

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