Sunday, October 9, 2011

Impact of debt reduction raises moral dilemma

(previously published in the Terre Haute Tribune Star, 10/9/11

TERRE HAUTE — How will we solve the debt problem? As solutions become framed in simple ways, which seems about the only kind of solutions possible in an age of sound bytes, Twitter, and low-information voters, it comes down to cutting spending or increasing taxes. Generally public opinion seems to support cutting spending and increasing taxes to solve the problem. No wonder the politicians can’t agree.

Of course, public policy gets into more knotty questions than do media polls. Whose taxes to raise? There seems to be overwhelming support on raising the taxes on the rich (whoever they are) but I can’t find any credible polling that asks the question, “are you willing to pay higher taxes.”

What to cut? Americans report that half of government spending is waste. Yet, significant majorities reject cutting the biggest spending: Social Security, Medicare, and the military. If half of government spending is waste, why not cut half of those?

I am concerned that as we reduce everything to the simple (simplistic at times) mechanics of a spreadsheet, that we forget about the impact of these decisions on people. To be really simple about it, raising taxes means taking from those who have it. Our current tax code, apparently, creates a situation in which half of households pay no federal income tax (this is debatable, but this seems to be the “truthiness” fact de jure). Assuming no tax system would actually tax a household into poverty, we can assume any tax increases are going to come from households that can “afford it.”

How about the cuts? Let’s leave aside military spending for a moment and focus on the big “entitlements” — Social Security and Medicare. Does anyone really think that Social Security is lavish? The problems with Social Security are not wastefulness or lavishness, they are largely demographic. When the Baby Boom generation has passed (in 2054 the youngest will turn 90), a good deal of the crisis will be over.

While increased taxes will fall on the “haves” the big cuts will fall onto the “have-nots.” Despite TV commercials that depict today’s seniors as affluent, the facts paint a picture of a more vulnerable population. Consider this statistical portrait from the 2008 Current Population Survey (note, these data are from before the onset of the Great Recession). The median household income for seniors (aged 65-plus) was $18,208; 9.7 percent of seniors fell below the poverty line. Social Security is the most common retirement benefit; 89 percent of senior households receive it. For 68.9 percent, Social Security accounts for half or more of their retirement income. For 26 percent, it is their only income. Average benefits for an elderly couple: $1,877 a month.

But what about pensions and annuities? What about those early retirees with fat stock portfolios? The trend toward early retirement ended in 1985, the trend has since reversed. Only 34.2 percent of seniors receive income from an employer-sponsored retirement plan. And the number of employers offering such plans are decreasing. What about assets? Fifty two percent of seniors derive income from assets. The median income from those assets was $1,054 per year.

What makes up the biggest expenditures for seniors? Not surprisingly, health care, and that is the target of the other big cuts. So, cuts to entitlements would hit a vulnerable population twice. And seniors feel this vulnerability. According to a study published by in July 2011, economic insecurity among seniors is on the rise.

For those who say leave the current seniors alone and change these social safety net program for today’s 50 year olds (and younger), I quote from the same study:

In addition to rising costs of essential needs, especially health care and housing, today’s 50-year-olds are much less likely than current seniors to have a defined benefit pension that would provide a life-long secure income. Many of today’s workers are not offered a retirement account of any kind, and for those who do have an employer-sponsored 401(k) or other defined contribution plan, most are woefully underfunded. Social Security remains the primary source of income for most retirees and is the only secure resource guaranteed to provide income throughout retirement for many households (


Tax increases and spending cuts may be equivalent on the spreadsheet but they are not equivalent on their impact on people. Proponents present them as moral imperatives to rescue our republic. While it may be a moral imperative to reduce the national debt, taxing the “haves” or cutting benefits to the “have-nots” are not moral equivalents.
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