Tax Cuts, Medicare, and the Kids
Federal Medicare spending will increase sharply as baby boomers, with their longer life spans than previous generations, sign up in droves. The Social Security Trust Fund also reports that its reserves will be depleted in 2034, requiring either benefit cuts or new revenues to replenish a program that keeps millions of older Americans either out of poverty or just above water.
These two programs currently account for about 40 percent of the federal government’s $3.7 trillion budget. Most people agree that we need to deal with the financial shortfalls in Medicare and Social Security. And there is precedent. Remember the bipartisan 1983 reform that put Social Security on firmer footing by increasing the program’s revenues and gradually raising its Full Retirement Age?
But there is growing concern among retirement experts and advocates for the elderly that the proposed $1.5 trillion in tax cuts will make future reductions to these critical retiree programs all the more likely in order to rein in growing federal budget deficits.
If cuts to Medicare and other social programs follow a tax cut, it would fly in the face of what regular folks said are their top priorities in a new Kaiser Family Foundation poll: Only a small minority of Americans support tax cuts if they involve cuts to Medicare, Social Security, and Medicaid.
That future could arrive much sooner, too, if the final tax bill shakes out a certain way: if Congress doesn’t come up with offsetting revenue increases or spending reductions, Medicare and other social programs will see automatic cuts under current budget rules unless at least 60 members of the Senate agree to waive these cuts. Administration officials and other proponents of the tax cut argue that it will encourage businesses to invest more, spurring economic growth, which will, in turn, generate more federal tax revenues.
Many economists agree on this: tax cuts could help boost growth, but they also contend that they do not generate enough additional tax revenue to “pay for themselves,” making larger federal deficits inevitable.
If they are right, larger deficits could be ”used to argue that deep cuts to Medicare, Medicaid, Social Security and other bedrock programs are necessary,” to close the future deficit, the Medicare Rights Center, a consumer organization, warned recently.
The Congressional Budget Office projects that the deficit is already poised to deepen in coming years. The 10-year, $1.5 trillion tax cut, if it passes, would make things worse.
If the middle class sees a smaller tax bill from the new legislation, their personal finances could also be strained more in future debt-curbing legislation, either through tax hikes or benefit cuts. It’d be interesting to see an analysis of the net gains or losses for the middle class when these effects are included.
Baby boomers whose retirement is largely baked in won’t be that affected by an expanding deficit. But we should worry about our kids.
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