AARP Ignores Need for Fiscal Reform

Monday, October 24, 2011

Blogs

Last week, AARP doubled-down on its insistence that Social Security and Medicare benefits should be off the table in negotiations to stabilize the nation’s debt.

Last week, AARP doubled-down on its insistence that Social Security and Medicare benefits should be off the table in negotiations to stabilize the nation’s debt. It did so in a letter to members of the deficit reduction “super committee” and in response to a Concord Coalition statement criticizing AARP’s new ad campaign, which warns that 50 million seniors will be heard from on election day if Congress even thinks about touching their benefits or asking them to pay more.

AARP’s further explanations are not encouraging. It continues to insist that Social Security poses little, if any, budgetary challenge because of an ample trust fund surplus and that cutting unspecified “waste” in Medicare can avoid hard choices on benefits and cost-sharing. AARP’s response to Concord’s statement:

Does not acknowledge the magnitude of the fiscal challenge we are facing or the key role that Medicare and Social Security play in that challenge. Maintaining current fiscal policies is not sustainable. Even if the 2001 and 2003 tax cuts are allowed to expire, deficits and debt would still grow faster than the economy over the long term. Spending cuts will thus be required, and the main sources of spending growth are Medicare, Medicaid and Social Security. By contrast, most other federal programs, including defense, are projected to decline relative to the size of the economy. This basic dynamic cannot be ignored in crafting solutions.

Does not acknowledge the inherent trade-offs of keeping benefits off the table. Offsetting the growing cost of Medicare and Social Security over the next 25 years (3.5 percent of GDP) would require the equivalent of cuts of roughly 75 percent in all non-defense discretionary spending (i.e., education, transportation, housing, scientific and health care research, etc.). Offsetting the cost growth by raising individual income taxes would require an increase of more than 50 percent. Some combination could be used, but even so, the toll would continue to rise over time.

Does not acknowledge that a great deal of “waste” will already have to be cut simply to meet the Medicare provider spending targets enacted in the Affordable Care Act (ACA). Much of the 10-year savings ($682 billion) assumed in the ACA comes from a reduction in Medicare provider reimbursements. Serious questions have been raised by Medicare’s chief actuary and the Congressional Budget Office (CBO) as to whether the assumed reductions can be achieved without harming access and quality of care. The key point, however, is that a lot of waste reduction is already assumed in federal budget projections.

Does not acknowledge that redeeming the bonds in Social Security’s trust funds is a cost to the Treasury, which will increase the overall deficit. It is true that the trust funds have a positive balance projected to last until 2036. However, the trust funds are simply a claim on future general revenues. They represent an internal bookkeeping transaction between one arm of the government (Treasury) and another (Social Security). An ample Social Security trust fund surplus says nothing about where the Treasury will get the money to redeem the bonds. What matters fiscally and economically is the annual cash balance – how much is paid out versus how much comes in. Social Security is already running a cash deficit and, absent change, is projected to do so from now on. Some combination of benefit cuts and/or tax increases will be necessary to close the gap and the sooner this problem is addressed, the better.

The natural outcome of AARP’s position is continued, if not intensified, political gridlock. The politics of deficit reduction are hard enough without interest groups building walls around favored items. Exemptions sow resentments, destroying the needed sense of shared sacrifice.

Should military veterans accept a cut in their benefits when Social Security can’t be touched? Should taxes on workers be raised or programs for children cut when seniors keep their 75 percent subsidy for physician services and pharmaceuticals? This political dilemma was recognized by two bipartisan fiscal commissions last year that recommended broad changes across all segments of the budget.

Moreover, ominously, AARP’s refusal to have its members bear any of the sacrifices needed to solve our fiscal problems pits generations against one another and risks the broad support Social Security and Medicare have enjoyed. Social insurance programs critically depend on everyone’s approval and trust. They form an implied generational compact in which each generation’s welfare depends directly upon the willingness of the next generation to participate. If the next generation grows disaffected, the survival of the system is thrown into question.

The issue is not whether Social Security and Medicare are good programs. They are. The issue is whether they are sustainable over the long term in their present form. They aren’t.

Social Security and Medicare already comprise 33 percent of the budget. In the years ahead, an aging population will greatly expand the number of beneficiaries for both programs, while rising health care costs will increase the cost per beneficiary for Medicare. Both factors will put heavy pressure on the budget. This conclusion is not one cooked up by The Concord Coalition. The CBO, the Government Accountability Office (GAO) and the programs’ own trustees under Democratic and Republican administrations have all warned of huge imbalances in the years ahead.

Neither program can pay promised benefits without a large and growing dose of general revenue from the Treasury. This puts them in competition with other spending priorities. AARP’s position, which seems to represent a new hard-line approach, is that there should be no competition at all…senior benefits must always win. This would inevitably mean deep cuts in all other federal spending, large tax increases, or unsustainable levels of borrowing. It is an untenable position.

To bring deficits and debt under control, policymakers will ultimately need to reduce projected spending to levels that can be supported with plausible levels of taxes and debt. Given their size and projected growth, any strategy for fiscal sustainability will require reform of Medicare and Social Security. This will require difficult choices regarding who should receive what level of benefits, and how those benefits should be delivered.

To be clear, AARP is not the only organization in Washington that has taken a hard line against changes affecting its interests. Anti-tax advocates, in particular, have made a point of insisting that there must be no net tax increase. That, however, is little comfort and simply underscores AARP’s lost opportunity for leadership. Unfortunately, the nation’s leading advocate for seniors is not ready to have an “adult conversation” about Social Security and Medicare.