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FOSTER: Simple entitlement reforms we can all agree on
President Obama and the Washington punditry's rush to declare victory over conservative opposition to higher taxes recalls Mark Twain's saw after the publication of his obituary: "The reports of my death have been greatly exaggerated." What has not been exaggerated in the budget debate, indeed hardly mentioned, is the absence of any proposals to address the real source of our fiscal problems — entitlement spending. Where are your bold proposals there, Mr. President?
Of course, Mr. Obama knows the budget issue is not and never has been about revenue. His original proposal to allow the George W. Bush tax cuts to expire for taxpayers making more than $250,000 raised a pittance compared to his projected deficits. Soaking the rich is a jobs-destroying ideological objective, nothing more.
The problem is spending, which soared under Mr. Obama, accounting for about half of 2012's $1.1 trillion budget deficit. With rising entitlement spending on the immediate horizon, where are the entitlement reforms? This is the moment — "fiscal cliff," debt ceiling, post-election.
Mr. Obama knows as well as anyone that the only way to restore the nation's fiscal house is to restrain the growth in entitlement spending. Social Security, Medicare and Medicaid will, on their current trajectory, absorb every dollar of revenue collected in just a few years. No one disputes this.
Better, there are some simple, powerful, well-vetted and well-understood reforms that can be instituted quickly.
Better yet, these reforms enjoy broad support across the political spectrum. A good example is raising the Social Security eligibility age to match increases in longevity. Originally set at 65, the normal eligibility age is now rising two months every year until 2022 when it will reach 67.
According to the Social Security actuaries, continuing the increase to age 69 by 2034 and allowing it to rise more slowly thereafter to reflect longevity gains could reduce Social Security's funding shortfall by as much as half, or more.
True, this would not reduce today's budget deficit, but it would strengthen Social Security's finances while dissipating far more important long-term budget pressures.
Another widely understood, broadly supported reform involves a technical fix to Social Security's annual cost-of-living adjustment, determined today by the Bureau of Labor Statistics' Consumer Price Index.
However, the CPI is an antiquated measure which generally overstates inflation, meaning benefits are increased a bit too much each year to offset inflation. The effect on benefits in a given year of switching to the more accurate inflation measure is minute, but Social Security spans generations. The actuaries figure using a more modern inflation measure would over time reduce Social Security's shortfall substantially.
Like Social Security, Medicare has an eligibility-age problem. Unlike Social Security, the Medicare eligibility age remains stuck at 65. An obvious solution is to wait a few years and then slowly raise the eligibility age to align with that for Social Security. Leaving these programs' eligibility ages where they are today is unreasonable and unaffordable.
Another extraordinarily simple, effective and broadly supported reform enjoying is that upper-income retirees don't need Medicare subsidies. In 2012, the average Medicare beneficiary received a subsidy of about $5,000.
It makes sense to subsidize Medicare benefits for low-income seniors; perhaps for some middle-income seniors, too. But why should a retired millionaire get a $5,000 subsidy to buy Medicare? Outside of farm programs, even Congress is generally reluctant to provide subsidies to millionaires.
You want bipartisanship? The Medicare subsidy was first cut back for the wealthiest seniors in legislation signed by Mr. Bush in 2004. It was cut back further in Obamacare, and Mr. Obama proposed to pare it back further yet in his budget proposals in February.
Medicare has many problems, but the fiscal problem is straightforward — it's the subsidy. The total cost of the Medicare subsidy, about $230 billion in 2012, over time will soar as health care costs rise and the baby boomers retire. Paring back the subsidy for wealthy retirees is an obvious step toward reducing the budget deficit today and shoring up Medicare for the long run.
Mr. Obama should attend to the nation's real budget problems, not continue to press for destructive, ideologically driven tax hikes. Having won an election, if not a mandate, it is time for the president to lead.
A handful of fairly obvious, understood and agreed-upon changes to entitlements would go a long way toward restoring the nation's finances.
• J.D. Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at the Heritage Foundation.
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