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Anya Kamenetz Generation Debt

Anya Kamenetz, Generation Debt

Social Welfare Programs: Reform Is the Answer

by Anya Kamenetz

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Posted on Tuesday, July 1, 2008, 12:00AM

You want to retire, right? You're probably also not too keen on having Mom and Dad move back in with you 10 years after you've finally managed to move out of their home.

That's why you should care about the future of Social Security and Medicare. Along with Medicaid -- the health care program for the poor -- these are the largest social welfare programs in the U.S., making them both extremely popular and extremely controversial. Though they're not top-of-mind for most young Americans, they should be.

The status of these programs affects our parents' fortunes -- and therefore whether we'll be taking care of them in the future -- not to mention our generation's own ability to eventually retire.

Yet spending on Social Security, Medicare, and Medicaid programs already accounts for 42 percent of the budget, and they are locked in to grow automatically every year with the cost of living (which is why we call these "entitlement" programs). Worse, these programs are way out of balance from a budget point of view. The long-term shortfall between the tax money allocated for these programs and the benefits we've already promised to pay out to current and future generations amounts to 53 trillion dollars.

That's almost half a million dollars per household in the U.S. We've made promises to our retirees that we can't afford to keep unless we raise taxes, change the benefits, borrow more, or all three.

These expenditures and the associated federal budget debt and interest are making it rather difficult for the nation to invest in education, health care, infrastructure, energy, and many other programs that might benefit younger Americans. And the spending for these programs is gaining speed like a runaway train as the Baby Boomers start to retire.

The answer, for those who care about the future of these programs and the future of the country, is reform -- the sooner, the better.

I was proud to recently take part in an unusual summit on these issues.  A select group of 11 youth leaders from across the political spectrum spent two days hearing expert testimony on social welfare programs. And we collaborated on a declaration stating that quick action is needed to reform them and put our federal government on a sounder fiscal footing, for the sake of both the younger and older generations.

Here were the most important and eye-opening things I learned after hearing the presentations from the likes of Alice Rivlin, the first director of the Congressional Budget Office; David Walker, former Comptroller General of the United States; and various experts from places such as the Brookings Institution, the Urban Institute, and the New America Foundation.

Health Care Is Issue No. 1

The cost of Medicare and Medicaid is growing much faster than that of Social Security, because the cost of health care is rising at twice the rate of inflation. America already spends 14 percent of our Gross Domestic Product on health care, which is far more than any other industrialized nation, even though we have almost 50 million people who have no health care coverage at all. So reforming Medicare and Medicaid won't work unless the entire health care system is reformed.

Unfortunately, no one has a complete, guaranteed-effective plan for controlling health care costs. Some solutions mentioned at the summit included universal coverage, as is seen in other industrialized nations; better technology, such as standardizing electronic health records; better public-health measures to control chronic diseases such as diabetes and asthma; and better incentives, like paying physicians for overall health outcomes instead of fee-for-service.

Social Security Could Be Fixed Tomorrow -- and It Should Be

Social Security's budget problems are urgent but not insurmountable. A couple of presenters mentioned the idea that representatives from both sides could go into a room and adjust the benefit and tax formulas to bring Social Security back into long-term balance in a single day. Interestingly, this is more or less what happened the last time the program was reformed, back in 1983. Social Security had actually all but run out of the money to send out checks by the time Congress finally took action.

According to the latest Trustees' Report, Social Security could be brought into balance over the next 75 years with either a single immediate increase of the payroll tax -- from the current 12.4 percent to 14.1 percent -- or an immediate 12 percent cut in benefits, or some combination of the two. Each year we delay, the changes get bigger -- and people in their 30s and younger end up paying more and more of the bill.

Another way to cut the costs of the program would be to raise the retirement age to 70 (currently, the earliest possible retirement age for receiving Social Security benefits is 62). Raising the retirement age has intuitive appeal to me and many of my fellow youth leaders. After all, we ourselves expect to work longer.

Interestingly, even the more conservative experts acknowledged that switching benefits to private investment accounts for the young and future generations would do little for the near-term Social Security problem. President Bush, who last proposed this idea, has acknowledged this fact himself.

Personal Savings Are Paramount

This conclusion should ring a bell for regular readers of this column. Whether Social Security and Medicare benefits stay in place, are cut, or grow, they were never meant to be your entire cushion for retirement. Several of our experts mentioned the importance of policies to encourage personal saving as a means of supplementing our federal retirement benefits system.

The most important thing you and I can do to ensure our own future financial security is to save, save, save. There are some interesting proposals out there to encourage private saving as a matter of federal policy. The new book "Nudge" contains some fascinating material on how our government could encourage better financial decision-making -- for example, requiring automatic 401(k) enrollment. And the Harvard Business School professor Peter Tufano, whom I had the pleasure of speaking with recently, has done a lot of research on the best ways to encourage people to save.

Young people may have the time to save their way out of retirement insecurity.
Unfortunately, our Baby Boomer parents by and large are not particularly well set up for retirement. They had less access to private pensions than the generation before them, and the current decline in the housing market is eating into their net worth.

So even though I think it is crucial for young people to encourage swift action on Social Security and Medicare reform, we have to keep in mind that we're going to be subsidizing the retirement of the older generation one way or another. Either we pay higher taxes to support their retirement benefits -- or someday we'll be clearing out that bedroom for Mom and Dad.

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310 Comments

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  • XX - Thursday, July 24, 2008, 9:56AM ET  Report Abuse

    • Overall: 2/5

    Anya, you are a good writer. You research. You are an expert in your field and I consistently give you good ratings. But you are not a leader. I was particularly insulted by you trying to pass yourself off as a leader with words like, "me and many of my fellow youth leaders." Just because you are on a panel doesn't make you one. You do not have leadership experience and I wouldn't follow you. That said, I wouldn't suggest pushing retirement to age 70. I'd suggest increasing payroll taxes not by raising the percentage, but by raising the limit on income that is taxed and by capping the limit to $1,500 per month, indexed annually for inflation. Social Security should remain a supplement, not a mainstay.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 5:45PM ET  Report Abuse

    • Overall: 1/5

    Raise retirement age to 70 are you out of your mind? I don't see a big jump in life expectancy to warrant that. Remember sweety not everyone sits on their butt in front of a computer writing a column. Many people long for that day. People who work hard for a living, their bodies give out sooner. I am sorry, I forgot your a liberal elitest.

  • groblix - Wednesday, July 16, 2008, 1:11PM ET  Report Abuse

    • Overall: 5/5

    Thank Goodness. When I saw the word reform, I thought she was going to trot out some risky old "privatization" scheme. I guess some young and pretty people have a bit of sense after all.

  • Gary B - Monday, July 14, 2008, 11:21AM ET  Report Abuse

    • Overall: 4/5

    During an election year, it seems that all the dittoheads have to blast everyone as "socialist", etc., etc., etc... blah-blah-blah... Anya's article just reiterates what knowledgeable people already know about Social Security, Medicare, Medicaid, etc. Still, I guess it's a message worth repeating.

  • Rodger - Friday, July 11, 2008, 9:17AM ET  Report Abuse

    • Overall: 2/5

    I have a better social welfare program for the millions of non-contributors out there these programs target - they're called jail and deportation.

  • BTG - 1 - Thursday, July 10, 2008, 7:25PM ET  Report Abuse

    • Overall: 4/5

    Nothing earth-shatteringly good in this column, but I don't see the huge socialist agenda many posters seemed to either. Nor did I spot anything very outrageous or hugely irresponsible here, so I'm not sure what I'm missing.

  • Yahoo! Finance User - Thursday, July 10, 2008, 5:13PM ET  Report Abuse

    • Overall: 1/5

    You might get your wish Anya. This is Obama's response to Gramm's comment that the U.S. is a nation of whiners: "It isn't whining to ask government to step in and give families some relief," he said, drawing a standing ovation from the nearly 3,000 people in a high school gymnasium. "And I think it's time we had a president who doesn't deny our problems or blame the American people for them but takes responsibility and provides the leadership to solve them." That's freaking scary. I agree with Gramm. We are a nation of whiners. People treat bubble periods as if that's the way things are supposed to be all the time. A steady boring economy is normal. A bubble is abnormal. People get cranky when they can't spend like drunken sailors.

  • Flyer1 - Wednesday, July 9, 2008, 10:11PM ET  Report Abuse

    • Overall: 5/5

    The problem: We cannot afford this super expensive health care system. Solution: Reduce the cost through regulation or socialize it like every other country in the world. I don't care how - pick your poison but REDUCE the freaking cost! Next Problem: Lack of Social Security funding. Solution: Increase the tax base. How? Increase the tax intake. How? Increase tax paying population or raise taxes or "expand the economy" (LOL - the Republican answer to everything). Immigration is the only way left to increase population since the baby boomers didn't have enough kids.... Actually, I do not see much hope in any solutions as the country is controlled by and being destroyed by greedy people and greedy corporations - there is simply too much wealth imbalance for the working class to have any chance.

  • Yahoo! Finance User - Wednesday, July 9, 2008, 2:10PM ET  Report Abuse

    • Overall: 1/5

    I love hearing people in their 20's complain about having to take care of her parents when they're older. How long did you greedy, self-important little brats live in your parents' houses and eat their food? Well into your 20's I'm sure.

  • binderzz - Wednesday, July 9, 2008, 1:41AM ET  Report Abuse

    • Overall: 1/5

    Every generation thinks they're smarter than the preceding one. Anya is a good example of just that. When your parents ask to move into your extra bedroom for their retirement, I hope they remind you just how much more financially comfortable their retirement would have been if they'd been childless instead of raising you.

  • Yahoo! Finance User - Wednesday, July 9, 2008, 12:18AM ET  Report Abuse

    • Overall: 5/5

    mandatory 401k is the key to a sucessful retirement with no ability to cash out before the age of wisdom sets in.

  • Stevo - Tuesday, July 8, 2008, 11:11PM ET  Report Abuse

    • Overall: 1/5

    telling people with their pockets inside out to SAVE??? not mentioning facts like the cutoff limits being raised... or all of the other options out there? You are either a advocate for the wealthy/greedy, or a government mouth-piece, sound-bites without much character or substance... you would be stoned by the masses...

  • Feem O - Tuesday, July 8, 2008, 9:07PM ET  Report Abuse

    • Overall: 1/5

    Another ridiculous article from this pro-state, big government socialist shill. Here's an idea, instead of retirement being the government's job, put the responsibility on the INDIVIDUAL, the way it's SUPPOSED TO BE. THIS IS NOT EUROPE! I REPEAT, THIS IS *NOT* EUROPE!!!

  • Yahoo! Finance User - Tuesday, July 8, 2008, 7:57PM ET  Report Abuse

    • Overall: 1/5

    socialist!

  • JOel - Tuesday, July 8, 2008, 4:20PM ET  Report Abuse

    • Overall: 1/5

    So Americas corporations have sold another one to Wall street,the Govermnet and the media. If one pays SSI / Medicare taxes for fifty years what is one entitled too one .has not paid for? The current market returns for the last eight years is in the toilet. What is it about financial writers that they beleive the numbers, as do government economists. How long will world con, enron, subprime, socializm for Bear stearns and the well skilled efforts by lobbyists and leadership be discussed. How can one think that in a period of record corporate profits that corporations do not have a ethical resposibity to share with their employees? The losses go to the share holders and the profits go to who?

  • Michael H - Tuesday, July 8, 2008, 4:11PM ET  Report Abuse

    • Overall: 3/5

    For those interested in how we can control health care costs, I highly recommend "Who Killed Health Care" by Regina Herzlinger. In the book she lays out how we can have universal health coverage at lower cost without ever more government involvement in health care.

  • Yahoo! Finance User - Tuesday, July 8, 2008, 3:58PM ET  Report Abuse

    • Overall: 1/5

    Here is a novel idea...instead of raising social security, why not wipe it out and require employers to take out say 10% of their paycheck to invest in some sort of fund. When acquiring my life insurance liscense the one thing engraved into our heads was the in social security "You will not get what you put in." How is that an option that anybody would want. That way every employed person gets the basic knowledge of an investment, whether it be a government security or a fund. Also, each person would actually "get what they put in" plus a premium of their investment.

  • Allen - Tuesday, July 8, 2008, 2:04PM ET  Report Abuse

    • Overall: 1/5

    simplistic and almost one sided.Private savings plans can be wiped out. Stock market great if u live long enough and are lucky to retire in the right stage of its cycle Young people should be taughtto save and given the tools but we are caught in the dilema of urging them to buy buy buy.

  • Don - Tuesday, July 8, 2008, 1:49PM ET  Report Abuse

    • Overall: 3/5

    Would like to know more about ideas on best short-term improvements to healthcare, especially as you fairly point out that this is turning out to be in more critical condition than social security - I'm glad if 20-somethings are paying attention to these issues via your articles, because they are otherwise easy to leave for families and elderly to cope with. Last point - short of raising tax rate on all, social security tax could be collected on a broader base (currently applied to something like only payroll, first $100K). It makes sense to combine some increase of base with a small pushback of retirement age, given that we're living longer. Better not to raise the tax rate esp. when forseeable future involves slow growth & inflation.

  • Honneker - Tuesday, July 8, 2008, 12:43PM ET  Report Abuse

    • Overall: 1/5

    Another reason to hate "youth leaders" and their followers.

  • josed - Tuesday, July 8, 2008, 12:03PM ET  Report Abuse

    • Overall: 2/5

    I am too old to enjoy the benefits of a private social security program. However, I do believe that young individuals should have the freedom to choose between a government sponsored program or a private account or a combination. In my opinion, individual responsibility is the key to any successful retirement program. You can't have all your toys and expect to have a well funded retirement.

  • Edward - Tuesday, July 8, 2008, 11:32AM ET  Report Abuse

    • Overall: 1/5

    The report is wrong. Switching to a savings for retirement system would increase the welfare of all workers and have no effect on retirees.

  • MS CAROL D - Tuesday, July 8, 2008, 10:01AM ET  Report Abuse

    • Overall: 3/5

    Fixes to Social Security: Tax every dollars earned; make sure that everyone pays into SS-too many other retirement programs i.e., railroad, public employees,teachers; raise SS tax. Fix healthcare: Combine Medicare and Medicaid; combine all healthcare systems i.e., Federal, Congressional, public employees, veterans; make healthcare universal. Here's a heretical thought: taxes need to be raised--sorry folks we all need to pay more; very few people are that rich where they don't need our two biggest welfare programs: Social Security and Medicare. Our country needs a safety need for everyone, not just for people under 18 and over 65, in order to preserve the middle class that was created after WWII.

  • Yahoo! Finance User - Tuesday, July 8, 2008, 9:55AM ET  Report Abuse

    • Overall: 1/5

    I don't consider social security to be welfare since it's a stop gap retirement measure that tries to ensure that especially low paid workers can survive retirement. congressman have pensions, CEO's have really large pensions, etc... and these costs are socialized through prices and taxes so what makes them any better?

  • Yahoo! Finance User - Tuesday, July 8, 2008, 7:50AM ET  Report Abuse

    • Overall: 1/5

    Two simple reforms: 1. Wages will need to be raised to pay for it. 2. Failing that, the rich will need to pay more - drop the exemption once their pay exceeds the max.

  • TomS - Monday, July 7, 2008, 11:19PM ET  Report Abuse

    • Overall: 4/5

    The reason I rated this as "very good" is because it's a subject that NEEDS to be recognized & addressed. I don't necessarily agree with Anya's solutions which assumes keeping the failing systems in-place, but I think millions of young mush-head kool-aid drinkers have nary a clue of the asteroid screaming toward their world. Socialism has never worked. Socialism will never work. And... I clearly recall a State of the Union address when "W" bemoaned the fact that congress had again failed to make any progress on Social Security reform and the Democrats burst into cheers and applause. That should tell you all you need to know, if you'll stop drinking the kool-aid for just a little while.

  • nullator - Monday, July 7, 2008, 8:07PM ET  Report Abuse

    • Overall: 1/5

    The only accurate thing you state regards the importance of personal savings. Anya, *no* Ponzi scheme works. Add to that the socialists who want to expand the payout it'll never work. Please write articles in areas where you have at least a little expertise.

  • Bob - Monday, July 7, 2008, 4:58PM ET  Report Abuse

    • Overall: 1/5

    This article is a gross oversimplification of the big picture. The social security system was designed, since its inception, to place the burden of its financing upon those able to work. Payments to the recipients come right out of the Treasury as well as collections. The so called Trust Fund is no more that a reserve fund to insure continuity of payments. Our country serves all of the people, not just a select few. Keynes called our economic system a mixture of all endeavers, which included, a competitive and a social society for starters. He advocated control of essential industries, which included the electric, water and energy sectors and common sense dictates that no monopoly should exist in any of those sectors. The absence of controls spawns this type of article, since the cost of living is strained to the limits and out comes the self serving bombast from the closets.

  • Da Big Guy - Monday, July 7, 2008, 4:07PM ET  Report Abuse

    • Overall: 3/5

    Savings is the one sure and somewhat safe security net! Practicing personal self discipline for a lifetime is the key...Something our leaders seem to have never attempted! Us Baby Boomer's who were raised by America's greatest generation have lived and practiced self discipline are used to (and sick from) taking care of everyone else!

  • JoshJ - Monday, July 7, 2008, 3:49PM ET  Report Abuse

    • Overall: 1/5

    The view from the Ivory Towers must be magnificent. Social Security should be ended immediately. One sided, biased article. Is this syndicated in Rolling Stone by any chance? Is she a reporter for MTV News? It sure sounds like it.

Showing comments 6-35 of 310<< PreviousNext >>

More from Anya Kamenetz

Read the Generation Debt Book

According to economics professor Laurence J. Kotlikoff, Generation Debt offers "a truly gripping account of how young Americans are being ground down by low wages, high taxes, huge student loans, sky-high housing prices, not to mention the impending retirement of their baby boomer parents." Generation Debt will inspire you to take charge of your financial future.

Read more from Anya Kamenetz here and here.

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