Time to Get Serious about Entitlement Reform
By Congressman Joe Pitts
The winds of change are blowing in Washington these days. Fresh off of their win in the November election, House Democrats have taken to Capitol Hill with all the swagger that one would expect from a party that had been in the minority for more than a decade.
But, for all the change taking place in the halls of Congress these days, one thing remains the same: the need to find bipartisan solutions for reforming entitlement programs.
The same day Nancy Pelosi called a press conference to celebrate the completion of House Democrats' 100 Hours Agenda, Federal Reserve Chairman Ben Bernanke was on Capitol Hill with a more sobering message.
During testimony before the Senate Budget Committee, Bernanke warned that a failure to reform federal entitlement programs, especially Social Security and Medicare, could have grave consequences for the health of America's economy. Asked about the urgency of the situation, Bernanke told Senators on the Committee, "the right time to start was about 10 years ago."
The problem is one of simple mathematics. As a generation of baby boomers begins to retire, the number of Americans paying for these massive entitlement programs will be significantly smaller than the number of retirees drawing benefits from them. Anyone who has ever made a budget knows that spending more than you take in just doesn't work.
In 2005, President Bush attempted to address this problem by offering a bold plan to save and strengthen Social Security. His plan was completely voluntary and it didn't require cutting benefits or raising taxes.
By allowing workers the option of investing a portion of their payroll taxes in a personal retirement account, his plan would have had a real impact on Social Security's long-term solvency, while also allowing working Americans the chance to build wealth in an account that they owned and the government couldn't take from them.
Bush's willingness to take on this enormous challenge was greeted with monolithic opposition by Democrats in Congress. Ultimately, their resistance was enough to sink Bush's proposal.
Unfortunately for America, Democrats didn't counterbalance their opposition with a plan of their own. They simply said "no" to whatever Republicans put forth. Two years later, they've won majorities in the Congress, but the problem hasn't gone away.
There are only three possible ways to save Social Security for the next generation: massive tax hikes, massive cuts in benefits, or allowing our Social Security dollars to grow the way all other retirement investing does.
Predictably, the first signs of a possible Democrat compromise on Social Security reform have focused on raising taxes. Specifically, there has been talk of raising or eliminating the cap on the amount of wages that are subject to payroll taxes.
I believe this is bad policy for two reasons.
First, raising or eliminating the payroll tax cap would represent an enormous tax increase on hardworking Americans. It would slow the tremendous economic growth we've experienced in the years following the Bush tax relief and provide a disincentive for Americans to work hard to provide for themselves and their families.
Second, raising the payroll tax cap simply wouldn't do anything to help Social Security's solvency in the long run. It might postpone the problem by a few years, but it would certainly not produce a real fix.
In other words, attempting to solve our entitlement problem by raising taxes would require Americans to suffer all the tax-hike pain without getting any of the problem-fixing gain.
As the Fed Chairman reminded us this week, this problem is real, and it's threatening our future prosperity as a nation. The Social Security Trustees' report shows that each year we fail to act costs an additional $600 billion. Congress and the President must go about finding a bipartisan solution, but raising taxes on the American people is not the way to do it.