January 26, 1997

Medicare, Social Security Reforms Headed For Bumps

Now that President Clinton has had his inaugural schmooze, and House Speaker Newt Gingrich has been drawn and quartered, both must get down to the serious business of saving Medicare and Social Security.

After being trashed big time over Medicare during the political wars, Republicans declared it was Clinton's turn at bat. He stepped up to the plate and laid down a bunt.

He announced he would "split the difference" with Republicans regarding Medicare. This was said to save -- not cut, mind you -- $138 billion over six years by spending less than otherwise proposed.

If that sounds like Gingrich circa 1995, so what. The election is over. The media went gaga over this gesture of "reaching out" to Republicans in the spirit of bipartisan support for Medicare reform. Even Majority Leader Sen. Trent Lott got giddy momentarily -- hailing the statement as a step in the right direction.

Upon close inspection, however, the Medicare proposal proved to be only a test to see if the infield was alert. Thankfully, it was.

At least $55 million of the "savings" in home health care was to be transferred to the government's general operating fund. Taxpayers get it in the neck one way or the other.

Some of the savings would result from keeping premium payments by seniors at 25 percent of program costs. The payments are scheduled to decrease later this year.

Finally, price controls on doctors, hospitals and insurers would be ratcheted up one more time. It is apparent that Bill Clinton was attempting to sucker the GOP to again make a move toward the real pain of saving Medicare. However, postponing the inevitable to someone else's watch won't feed the bull dog.

Clinton was an easy out at first!

Social Security is another so-called entitlement at stake. Though having a bookkeeping balance, it will be sans cash at the present rate when the baby boomers start to retire. Young people in the early stages of their careers will get very little pension --if any at all -- in the future unless Social Security is fixed today.

First, it must be realized that Social Security taxes by employees and employers flow directly into the general fund. This cash is spent within two months for a host of other things besides pensions. The value of Social Security to pay future pensions is represented on the books by Treasury Department notes -- ordinary IOUs backed up by $5 trillion of federal debt. The first move to sanity must be to return the Social Security fund to its own bank account as it was originally.

Then we can take steps to insure money will be available for payees when they retire in about 20 years. There is a menu of possibilities.

The Presidential Advisory Council on Social Security this month suggested moving up to 40 percent part of the tax payments into the stock market. Stocks and bonds over the years have paid a higher return than Treasury bonds.

Social Security tax payments could go into grade-A corporate bonds or mutual funds investing in a basket of common stocks chosen for reliability. Such investments could be managed by the government bureaucracy, or chosen by individuals, or some combination of the two.

This approach is appealing to private enterprisers. Putting big gobs of capital into the economic system ought to stimulate investment in new businesses, product research, job training and other stimulants to growth.

Upon further reflection, the plan is scary -- particularly if the government is to call the shots. A trillion-dollar stock portfolio would be an 800-pound gorilla who sleeps anywhere it wants to. Anytime the government decided to buy or sell, the market would jump or fall drastically. Even the present big dogs of the market -- insurance companies and pension funds -- would he hard pressed to adjust. Good-bye little investors.

Even if individual employees were allowed to choose the stock funds or bonds, the pressure on the market would be intense. There is a limited amount of securities available.

Large demands for a scarce commodity drive up prices and reduce quality. Payoffs rest on earnings of the companies issuing stocks and bonds -- or on the likelihood of other investors more willing to gamble on other investors willing to gamble ad infinitum. Chain letters have better odds.

Incremental steps are a better solution for Social Security.

A good start would be to eliminate welfare, such as disability payments, from Social Security. If they do not qualify as ordinary welfare, they were not proper to begin with.

It seems most likely that Social Security will be reduced or denied entirely for retirees who paid all their lives into the system but worked hard enough to accumulate some living funds over and above the government allocation.

Also, the retirement age will be bumped up to age 67.

To further reduce claims, the Consumer Price Index will be revised to lower it one percent or so. This will cut the cost of living adjustments on which pensioners rely to keep their purchasing power equal to inflation.

The best idea floating around is to allow workers to put some of their Social Security Taxes into a tax-free Individual Retirement Account. Social Security pensions would be paid at a flat rate of $410 per month. The IRA would pay whatever it had earned in the free market.

Unfortunately, Medicare and Social Security reforms might be in jeopardy if they are delayed many months. GOP leaders took undeserved heat in the last election by leveling with Americans. Once burned, twice shy. If the Clinton administration is immobilized by scandals -- as seems likely -- bipartisanship will go down the drain.

There is a bumpy road ahead. Buckle your seat belts.

PARTING SHOTS

Steven Wright has figured it out: "You can't have everything. Where would you put it?"

By Lindsey Williams, columnist for Sun Coast Media Group newspapers