It is encouraging to hear so many politicians - Republicans and Democrats - talking about curbing entitlement spending. After all, it's our mandatory spending programs - mostly on health care - that threaten to drive the national debt to unsustainable levels. Over the coming decade, Social Security, Medicare, and Medicaid spending will top $20 trillion.
House Republicans are now sifting through that spending, preparing a package of entitlement cuts. I am willing to bet, when that package is presented, it will include a "55-and-older pledge." That's the promise politicians make when they talk about entitlement reform: Anyone 55-or-older will not be affected by Social Security reform. And sometimes they throw Medicare in for good measure. Paul Ryan made that clear in a recent post on his Medicare reform plan.
House Majority Leader Eric Cantor took the pledge too.
I will leave the politics of this pledge aside, except to note that older voters are far more likely to vote.
The policy grounds for the 55-and-older pledge are straightforward: people close to retirement are counting on Social Security and Medicare and they don't have enough time to adjust their savings to adapt to big changes in these important programs. Though it is not clear why someone 55 is unable to adjust, but someone 54 would have no problem. (For some interesting perspective on the benefits debate, check out this post)
President George W. Bush made the 55-and-older pledge when he talked up Social Security reform. But that was just as the baby boom generation, the largest in American history, began to turn 55. A decade ago, there was still time to include almost all the boomers in a Social Security reform plan.
That's no longer the case. Assuming that Social Security and other entitlement reforms take place in the first year of the next president's term (There is no sign of major reform this year or next) then any changes to the nation's largest entitlement programs will, presumably, not affect anyone born after 1958. That means more than half of the baby boomer generation would fall under the protection of the 55-and-older pledge.
Let's set aside issues of generational equity and ask a more basic question: Can this pledge really be kept?
If Congress extends current policies, including the benefit levels now promised by Medicare and Social Security, the publicly held debt will hit 97% of GDP by 2021. That same year, spending on Social Security, Medicare and interest on the national debt will make up just over half of all Federal spending.
In 2021, the oldest boomers will turn 75. The youngest boomers, 57. Given the magnitude of the challenge and the aging of the population, it is hard to see how everyone 55-and-older will be held harmless when Congress finally acts to close the long-term funding imbalances in federal health and retirement programs.
The math doesn't work.
Even assuming younger workers want to honor the 55-and-older pledge, will they be able to afford it? The unemployment rate for workers 55 and older is now just 6.7%. For workers 20 to 24 years old it is 15% and for those between 25 and 34 years old it is 9.3%. Given how slowly the labor market is recovering, you have to wonder if younger workers will have the earnings to support higher spending on retirement programs in 2021.
A few more facts to consider in evaluating the practicality of the 55-and-older pledge: The Social Security Trust Fund is now projected to go broke in 2037. Boomers born in 1959 will turn 78 that year.
Medicare is in even worse shape. According to the Medicare Actuary, after all the baby boomers have turned 65, Medicare will consume 6% of GDP. That's more than we now spend on defense.
A hard look at the numbers makes the 55-and-older pledge look more like a hope than a promise.
Source: http://www.pbs.org/nbr/blog/2011/02/the_55-and_over_promise_cant_b.html
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