December 5, 2005
By Edwin J. Feulner, Ph.D.
Sixth in a
When the federal government first sent men
into space, it vowed to bring them all home safely. "Failure is not
an option," flight director Gene Kranz famously told mission
control when Apollo 13 was in danger.
NASA kept its promise and brought those three men home safely. But
it's an open question whether Uncle Sam can keep another important
promise: To provide for retirees through Social Security and
Medicare. Once again, failure is "not an option," but it remains a
Let's begin with the more troubled Medicare. The 2005 Medicare
trustees' report estimated that providing all promised benefits in
just the next decade could require some $2.7 trillion in new tax
revenues. After that, the problem worsens. The long-term numbers
Providing promised Medicare benefits over the next 75 years would
require $29.9 trillion in new tax revenues. And those numbers will
rise as medical science creates better and more expensive
A recent Heritage Foundation report projected that "Raising taxes
to meet Medicare's 75-year shortfall would cost an average of 2.3
million jobs and well over $190 billion in real GDP annually
This is a surefire way to end the sort of economic growth that has
always allowed the ordinary American to climb the ladder. We could
be talking about the end of the American dream. And that's the
beginning. The real financial hit comes later, with ever-more
retirees on Medicare and ever-fewer workers shelling out
ever-larger amounts in payroll taxes.
Faced with this scenario, one might expect Congress to take action.
And in 2003 lawmakers did -- by adding Part D, an open-ended
prescription-drug benefit. In one stroke, a Republican congress and
a Republican president saddled taxpayers with an additional $8.7
trillion dollars of unfunded liabilities. Comptroller General David
Walker recently noted, "if that's not imprudent, I don't know what
So what would be prudent? First, suspend Part D by at least a year
in order to determine if it should be revised or how to pay for it
without raising taxes.
Financial conservatives in the Senate have proposed exactly that.
Their "Fiscal Watch Team Offset Package" would delay Part D and
save at least $115 billion over the next two years.
It also would extend and make even more generous the current
drug-card program that's helping low-income seniors. This would be
a reasonable start on the road to fiscal sanity. Once we do that,
we can start truly reforming Medicare by giving recipients more
health-care plans to choose from.
Lawmakers also need to fix Social Security. To cover all promised
benefits, Congress would have to pony up $5.7 trillion today.
That's a big hole to dig out of, but we do have a brief window of
opportunity in which to act.
Social Security is currently taking in more than it spends and will
keep doing so until 2017. Congress should let Americans invest a
portion of their payroll taxes in personal retirement accounts
(PRAs) that they, the taxpayers, would control. That way, these
surpluses would pile up in individual accounts. Workers would be
able to invest this money in much the same way they invest their
PRAs would allow even low-income earners to build up substantial
nest eggs. And workers would actually own them. They could spend
their money as they wish, using it all to finance their golden
years or conserving some to pass on to their heirs. And because
taxpayers could draw on their own personal accounts, we'd ease the
long-term demands on traditional Social Security.
There's a reason Medicare and Social Security are called
"entitlements." Taxpayers have made payments throughout their
working lives and believe they are entitled to collect benefits as
long as they live.
In much the same way, employees at General Motors thought they were
entitled to benefits, including free prescription drugs for life.
But the company, facing potential bankruptcy, is now attempting to
change its benefit package.
The same thing could happen with Medicare and Social Security.
Unless lawmakers fix these programs, future retirees might have to
watch Washington renege on, or at least reduce, its promises.
Next week, we'll look at how to relieve some of the pressure on
lawmakers -- by reforming "K Street Conservatism."
Feulner is president of The Heritage Foundation
(heritage.org), a Washington-based public policy research
First Appeared in Investor's Business Daily
When the federal government first sent men into space, it vowed to bring them all home safely. "Failure is not an option," flight director Gene Kranz famously told mission control when Apollo 13 was in danger.
Edwin J. Feulner, Ph.D.
Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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