May 31 (Bloomberg) -- Bernie Sanders, the U.S. Senate’s only avowed socialist, may be the chamber’s fiercest advocate of taxing the rich to cut the federal deficit. That doesn’t mean he wants to reduce their Social Security and Medicare benefits.
Representative Paul Ryan, the Republican chairman of the House Budget Committee, wants to give the wealthy big tax breaks to encourage them to invest and create jobs. He also wants to take away many of their retirement benefits.
Lawmakers who have spent years battling over taxing high-earning Americans are trading places when it comes to cutting their entitlements. Democrats say Social Security and Medicare have endured because they offer benefits to people of all incomes, and accuse Republicans of trying to kill the programs by stripping away their beneficiaries, beginning with the rich. Republicans say the fairest way to curb the deficit is to scale back the programs for those who need them least.
“It’s a weird political dynamic,” said Andrew Biggs, a former deputy commissioner of the Social Security Administration and now a resident scholar at the American Enterprise Institute.
With polls showing the public supports limiting benefits to the wealthy, and some Democratic leaders signaling a willingness to consider the idea, the rich may face cuts as lawmakers debate how to curb the national debt.
“It’s inevitable,” said Bob Bixby, head of the Arlington, Virginia-based Concord Coalition, which promotes balanced budgets. “I understand the Democrats’ arguments. I just don’t think it holds up in the face of the fiscal challenges that we have.”
Sanders, 69, said the debate isn’t just about numbers.
“The strength of Social Security and Medicare is that everybody is in,” the Vermont independent said in an interview. “Once you start breaking that universality and you say that if you’re above a certain income, two years later that income goes down and 10 years later it becomes a welfare program.”
Republicans say the waves of retiring baby boomers, as well as increasing health-care costs, are the real threats to the programs because the benefits are unsustainable.
“The thing that tears the social contract is insolvency,” said Ryan, 41, a Wisconsin Republican. “Means-testing is an obvious solution to our fiscal problems,” he said. “The alternative is everybody gets cut, so why don’t we put the money where it should go -- to the people who need it.”
The arguments divide Democrats, with some saying they are open to the idea even as they reject Republicans’ specific proposals.
“I’ve had a lot of people who are very wealthy and retired who ask me why they continue to receive a full Social Security check,” said Senator Dick Durbin of Illinois, the chamber’s second-ranking Democrat. “It’s a legitimate question.”
Durbin, a member of a group of lawmakers who’ve sought to hash out a deficit-reduction plan, said, “We have to acknowledge that some in the highest-income categories, frankly, can take care of themselves.”
Representative Steny Hoyer of Maryland, the House’s No. 2 Democrat, said, “I don’t adopt the premise that you’ve got to treat Ross Perot the same as Mr. and Mrs. Jones, who are making $40,000 a year.”
Though public opinion polls show that cutting entitlements is unpopular, there is support for paring them for the affluent. A December Bloomberg News poll found that while 82 percent said they oppose cutting Medicare benefits to help reduce the deficit, 67 percent favored curbing the program for the wealthy.
Make Gates Pay
Political strategist Karl Rove urged Republicans to emphasize plans to lower Medicare benefits for the rich in the wake of their surprise loss of a New York House seat that has been blamed on Ryan’s proposal to overhaul the program.
“The populist note is especially important,” Rove wrote in a May 26 column in the Wall Street Journal. “When he starts receiving Medicare, Bill Gates should bear a greater share of his health-care costs than the less healthy or less wealthy.”
Advocates of making the rich pay more for entitlements say they merely want to expand elements of the programs that are already progressive. Wealthier Americans currently receive fewer Social Security benefits while paying higher Medicare premiums for doctor visits and prescription drugs.
“For those who have substantial means, you can pay your own premium,” House Speaker John Boehner said earlier this month at the Economic Club of New York. “There is no reason why we should subsidize Pete Peterson’s premium,” he said, referring to the billionaire co-founder of Blackstone Group LP.
About 45 percent of the $500 billion Medicare program is currently financed with general tax revenue, with the remainder coming from a special payroll tax and individual beneficiaries’ premiums, according to a report by the Medicare trustees.
Though much of the public debate over House Republicans’ plans to overhaul Medicare has focused on their calls to privatize the program by providing subsidies to help seniors buy private health insurance, they are also proposing making it more progressive with deep cuts in aid to the well-off.
Those whose earnings put them in the top 2 percent of incomes -- at least $428,000 for couples -- would receive 70 percent less in subsidies, according to Ryan’s office and a Congressional Budget Office analysis of his plan. The next 6 percent, earning about $320,000, would receive half as much as everyone else.
“There’s only so much money to go around,” Ryan said. “Wealthier people are going to pay more.”
A Ryan spokesman said he didn’t have estimates of how much those elements of his budget-overhaul plan would save.
Chuck Blahous, who sits on the Medicare and Social Security boards of trustees, said the programs’ long-term budget shortfalls are so vast that targeting the rich won’t produce much more than a “down payment” toward ensuring their solvency.
Still, he said, it should be an area of compromise because it would offer Republicans a chance to cut spending while enabling Democrats to say they are protecting the vulnerable.
“It’s something that actually serves what both parties say they want to do, and you can make progress on the deficit at the same time,” Blahous said.
Representative Henry Waxman, the top Democrat on the Energy and Commerce Committee, which oversees parts of Medicare, said charging the wealthy more would make the program uncompetitive with private insurance. The California congressman said lawmakers ought to focus instead on squeezing out inefficiencies.
“If you put too much of a burden on wealthier seniors, who are basically healthy, they’ll go out and buy some other insurance,” he said. “The objective should be how to figure out how to hold down health-care costs” through “innovative delivery” rather than “simply just making arbitrary cuts.”
Representative James McDermott, a Washington Democrat, said providing benefits to those who don’t need them is a small price to pay to ensure the programs are available to everyone else.
“I don’t worry about paying a few benefits to Warren Buffett or Bill Gates,” he said. “As long as we make absolutely sure we got public support” for the programs.
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