Topic: Social Security

Social Security Bloviate-fest

The annual bloviate-fest on Social Security has begun, even before the Social Security Trustees’ report has been released this year.  Apparently the report is to be released next week — after a three-month delay from its statutory release deadline of April 1. 

There’s concern from groups interested in preserving Social Security that President Obama’s National Commission on Deficit Reduction will propose changes to the program involving benefit cuts. These groups, which include the AFL-CIO, MoveOn.org, NOW, and the NAACP have issued and allegedly rebutted five “myths” about Social Security.  But their selection of myths and myth-busting arguments are weak and involves questionable arguments.

Below is a list of the twisted logic that these groups are using to convince voters that all’s well with Social Security’s finances and that we should not worry and just be happy. Also below are my reactions to the “faux-myth-busters” arguments.

Myth #1: Social Security is going broke.

Reality: There is no Social Security crisis.  By 2023, Social Security will have a $4.6 trillion surplus (yes, trillion with a ‘T’).  It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever. After 2037, it’ll still be able to pay out 75% of scheduled benefits — and again, that’s without any changes. The program started preparing for the Baby Boomers’ retirement decades ago.  Anyone who insists Social Security is broke probably wants to break it themselves.

Real Reality: We’re in a vortex, and these folks refuse to extend help. Yes, I also don’t like the “crisis” terminology.  A better descriptor is “vortex,” the upper reaches of which can seem calm, for a time.  But eventually, we’ll realize that what we thought was a good place to be is really an inexorable path to the doom of being spun around super fast.

Yes, Social Security will have a surplus (of Treasury IOUs) of $4.6 trillion by 2023. But, notwithstanding the “T” attached to that sum, all’s not well.  By 2023, the program’s net liabilities (the shortfall of future revenues relative to future benefit commitments under existing laws) will exceed $20 trillion (note, also with a “T”).  Last I checked, 20 exceeds 4.6 by about four fold.

The fact that Social Security “will be able to pay” 75% of scheduled benefits after 2037 means we would have to impose a 25% benefit cut at that time if no adjustments are made earlier.  It’s said that the natural human instinct for justice emanates from a simple thought experiment — of placing oneself in the shoes of the victims. In this case, it’s those poor future souls who would have to acquiesce to a 25 percent benefit cut.  But they would be forced to do so only because the faux-myth-busting authors shrieked in horror when confronted with a much smaller benefit cut that would be required now to place the program’s finances on a sustainable course.

Myth #2: We have to raise the retirement age because people are living longer.

Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than they did 70 years ago. What’s more, what gains there have been are distributed very unevenly — since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half. But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut. 

Real Reality: Longer life spans, earlier retirement trends, a sharp decline in fertility that ended the baby-boom in the 1960s, and our failure to prepare for boomer retirements by saving adequately have all combined to expose Social Security (and our living standards) to a high risk of insolvency.

The “myth-busting” authors argue that infant mortality reductions caused most of the gains in longevity, but also that high earners benefitted more.  But the fact is that American longevity rates, as calculated by the National Center for Health Statistics, place life-expectancy at age 15 to be about 51 years in 1940 (through age 66).  Today (using 2006 life tables), it is 63.4 years (through age 78.4).  Combined with the fact that retirees beginning to collect Social Security benefits earlier (at age 62 rather than age 65), we have witnessed a very significant increase in retirement life spans.  

Skewed distributions of longevity gains by earning levels are not surprising. Higher earners are generally better educated, they know how to adopt healthy lifestyles, and have the incomes to do so.  The solution is not to take benefit cuts off the table, but to reform the system’s structure by eliminating statutory age eligibility rules AND providing stronger incentives to work longer — say, by gradually reducing payroll taxes with age and improving benefit replacement rates as incentives for working longer and beginning benefit collection later.  Incentives for such conservative choices on resource disposition (working longer and saving) would be especially enhanced the more “retirement benefits” are financed out of workers’ own resources compared to maintaining dependency on a regular government check.

Myth #3: Benefit cuts are the only way to fix Social Security. 

Reality: Social Security doesn’t need to be fixed. But if we want to strengthen it, here’s a better way: Make the rich pay their fair share.  If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come. Right now, high earners only pay Social Security taxes on the first $106,000 of their income.  But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

Real Reality: The system is badly in need of a structural fix.  Increasing taxes won’t strengthen Social Security, but only increase government spending as short-term Trust Fund surpluses increase.

The system was designed to be fair to everyone by not extending Social Security to the upper reaches of earnings for high earners. The program is intended to provide social insurance against the “loss of income due to old age,” not against the “loss of high income due to old age.”  High earners could self-insure against those losses if they wish by appropriately saving more for retirement. 

Under the current system, upper earners already pay more than their fair share for the appropriate level of social insurance. The Social Security benefit formula replaces only 15 cents to the dollar of their average wages above a certain threshold, whereas 90 cents are replaced for each dollar of average wages at the low end of the earnings scale. 

Moreover, increasing payroll taxes on high earners, many of whom are self employed small business owners, may push them into cutting back on business investments and hiring—precisely the activities needed to revive a sluggish economy.   

Myth #4: The Social Security Trust Fund has been raided and is full of IOUs

Reality: Not even close to true. The Social Security Trust Fund isn’t full of IOUs, it’s full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.7 The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market—which would have been disastrous—but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

Real Reality: We cannot really say one way or the other. 

We cannot observe how much the government would have spent if no Trust Fund surpluses had ever accrued. 

Two academic studies on the time trends of government spending and Trust Fund surpluses conclude that government spending increased more than dollar-for-dollar when Trust Fund surpluses increased compared to when those surpluses did not increase — suggesting (not proving) that exactly the opposite conclusion might be true.

But if we maintain that we truly don’t know whether Trust Fund surpluses are dissipated or saved — the likelihood that Trust Fund surpluses are spent must be placed at 50 percent: A very high gamble that we are dissipating Trust Fund surpluses — and odds that I would not recommend, especially for Social Security surpluses meant to be sequestered for future benefit payments. We need a better “lock box” than the Trust Funds provide in order to take Social Security fully and truly off budget.

Myth #5: Social Security adds to the deficit

Reality: It’s not just wrong—it’s impossible!  By law, Social Security’s funds are separate from the budget, and it must pay its own way. That means that Social Security can’t add one penny to the deficit.

Real Reality: By law, they are intended to be separate but, in fact, Social Security payroll-tax surpluses are no different from any other federal revenues.

Saying that Social Security must pay its own way does not preclude benefit cuts as a means of payment.  In reality, reforms to the program that are adopted eventually are likely to be pre-announced well in advance to allow affected participants to adjust their personal finances to the reality of smaller future benefits (through whatever channel) or higher taxes (of whatever kind).

But if people react by revising their expectations of smaller government retirement support and adjust their behaviors by working longer and saving more, then (a) they must be the rational, forward-looking types of individuals (whose existence is vehemently denied by defenders of Social Security), and (b) when it comes to direct changes to individuals’ resources via Social Security reforms, there’s really not much difference between tax increases and benefit cuts that are announced well in advance. To individuals, both approaches would appear as a reduction of future resources and would provoke a behavioral response. 

But a vast difference would arise in terms of the types of private behavioral response that the two alternatives would produce.  Pre-announced reductions in scheduled benefits would induce longer working lifetimes, more pre- and post-retirement saving, and larger transfers of human and physical capital to forthcoming generations of workers, which would increase their productivity. Tax increases, on the other hand, would provoke withdrawals from the work force, disincentives to saving, capital flight to low-tax countries, and reduced worker productivity. 

The faux-myth-busters need to be exposed for what they are: proponents of preserving their share of the national economic pie at the expense of our children and grandchildren. They are opponents of policies that would sustain faster economic growth and living standard improvements for successive generations.

Heating Up the Covert Generational War

My latest book Social Security: A Fresh Look at Reform Alternatives (available here) argues that it’s not just labor quantity — the number of employees who are accruing future Social Security benefits — that will determine the size of Social Security’s future imbalances (and, incidentally, those of Medicare, and the size of deficits for all of government), but also the quality of that labor — the value of the work those employees are doing. 

Declining labor quality (as experienced baby boomers retire) will reduce taxable payrolls faster than is being projected by the Social Security Administration and the Congressional Budget Office.  The result is even more beneficiaries receiving Social Security checks, and lower-wage workers who will be funding those checks.

In the book, I construct a detailed simulation of U.S. demographic and economic forces over the coming decades to estimate how much of a drag declining labor quality will exert on labor productivity, countering the effects of capital accumulation and technological advance.

Now James Heckman has coauthored a study suggesting that the same thing is happening in Europe, traceable in part to public policies promoting less use and low maintenance of worker skills through the early retirement incentives of their public pension, welfare, and health systems. 

So it is quite clear how the developed world (Anglo-Saxon and mainland Europe) will spiral downward.  We’ll all vote to “strengthen” social insurance systems (the U.S. health care “reform” this year being the latest example), only to further weaken incentives for the young to acquire skills, further erode the tax base, which in turn will promote the further “strengthening” of social insurance protections … and so on. 

My old idea of a “covert generational war” is playing out before our very (but fully blind) eyes.

Two months ago, EU officials were even flirting with the idea of a cross-country crisis insurance institution — a European Monetary Fund. 

One ironic element in the ongoing European crisis: Remember how the EU’s erstwhile Stability and Growth Pact included penalties on nations who exceeded the 3 percent fiscal deficit rule?  Turns out, penalties must now be paid by the “successful” countries — mainly Germany and France — by coughing up the aid packages!

Social Security in the Red

Social Security is officially in the red.  The New York Times reports that the system will pay out more than it takes in this year.  Explains the Times:

The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

The crisis is now, since the vaunted “trust fund” is filled with non-recourse government bonds–essentially worthless pieces of paper.  There’s no there there when it comes to financing future benefits.  Either payments have to come down or taxes have to go up, unless we adopt real reform centered around personal accounts.  And the latter course seems ever more distant after Congress voted to expand federal control over every Americans’ health care.

Bush’s Third Term

With President Obama’s repeated attempts to draw distinctions between himself from his predecessor—and a widespread belief that he and Bush are polar opposites in nearly every way—it’s actually startling how similar the two men are. And if the policies match the rhetoric, it’s going to be another very long 4-8 years filled with ever more government intrusion and red ink.

Obama’s Quotes Bush’s Quotes
“So we face big and difficult challenges. And what the American people hope – what they deserve – is for all of us, Democrats and Republicans, to work through our differences; to overcome the numbing weight of our politics. For while the people who sent us here have different backgrounds, different stories and different beliefs, the anxieties they face are the same. The aspirations they hold are shared. A job that pays the bills. A chance to get ahead. Most of all, the ability to give their children a better life.”
–Barack Obama, 2010 SOTU
“We’re not the first to come here with a Government divided and uncertainty in the air. Like many before us, we can work through our differences, and we can achieve big things for the American people. Our citizens don’t much care which side of the aisle we sit on, as long as we’re willing to cross that aisle when there is work to be done. Our job is to make life better for our fellow Americans and to help them build a future of hope and opportunity, and this is the business before us tonight.”

–George W. Bush, 2007 SOTU

“In a system of two parties, two chambers, and two elected branches, there will always be differences and debate. But even tough debates can be conducted in a civil tone, and our differences cannot be allowed to harden into anger. To confront the great issues before us, we must act in a spirit of goodwill and respect for one another - and I will do my part. Tonight the state of our Union is strong, and together we will make it stronger.”

–George W. Bush, 2006 SOTU

“I realize that for every success story, there are other stories, of men and women who wake up with the anguish of not knowing where their next paycheck will come from; who send out resumes week after week and hear nothing in response. That is why jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight.”
–Barack Obama, 2010 SOTU
“Americans who have lost their jobs need our help, and I support extending unemployment benefits and direct assistance for health care coverage. Yet, American workers want more than unemployment checks; they want a steady paycheck. When America works, America prospers, so my economic security plan can be summed up in one word: jobs.”

–George W. Bush, 2002 SOTU

“Now, the true engine of job creation in this country will always be America’s businesses. But government can create the conditions necessary for businesses to expand and hire more workers. We should start where most new jobs do – in small businesses, companies that begin when an entrepreneur takes a chance on a dream, or a worker decides its time she became her own boss.”
–Barack Obama, 2010 SOTU

“The way out of this recession, the way to create jobs, is to grow the economy by encouraging investment in factories and equipment and by speeding up tax relief so people have more money to spend. For the sake of American workers, let’s pass a stimulus package.”

–George W. Bush, 2002 SOTU

“Next, we need to encourage American innovation. Last year, we made the largest investment in basic research funding in history – an investment that could lead to the world’s cheapest solar cells or treatment that kills cancer cells but leaves healthy ones untouched. And no area is more ripe for such innovation than energy.”
–Barack Obama, 2010 SOTU
“And my budget provides strong funding for leading-edge technology - from hydrogen-fueled cars, to clean coal, to renewable sources such as ethanol. Four years of debate is enough - I urge Congress to pass legislation that makes America more secure and less dependent on foreign energy.”

–George W. Bush, 2005 SOTU

“Since 2001, we have spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources. And we are on the threshold of incredible advances. So tonight I announce the Advanced Energy Initiative - a 22-percent increase in clean-energy research - at the Department of Energy, to push for breakthroughs in two vital areas. To change how we power our homes and offices, we will invest more in zero-emission coal-fired plants, revolutionary solar and wind technologies, and clean, safe nuclear energy.”

–George W. Bush, 2006 SOTU

“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. That means building a new generation of safe, clean nuclear power plants in this country. It means making tough decisions about opening new offshore areas for oil and gas development. It means continued investment in advanced biofuels and clean coal technologies. And yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.”
–Barack Obama, 2010 SOTU
“Good jobs also depend on reliable and affordable energy. This Congress must act to encourage conservation, promote technology, build infrastructure, and it must act to increase energy production at home so America is less dependent on foreign oil.”

–George W. Bush, 2002 SOTU

“I have sent you a comprehensive energy plan to promote energy efficiency and conservation, to develop cleaner technology, and to produce more energy at home. I have sent you Clear Skies legislation that mandates a 70-percent cut in air pollution from powerplants over the next 15 years.”

–George W. Bush, 2003 SOTU

“The idea here is simple: instead of rewarding failure, we only reward success. Instead of funding the status quo, we only invest in reform – reform that raises student achievement, inspires students to excel in math and science, and turns around failing schools that steal the future of too many young Americans, from rural communities to inner-cities. In the 21st century, one of the best anti-poverty programs is a world-class education. In this country, the success of our children cannot depend more on where they live than their potential.”
–Barack Obama, 2010 SOTU
“When it comes to our schools, dollars alone do not always make the difference. Funding is important, and so is reform. So we must tie funding to higher standards and accountability for results.”

–George W. Bush, 2001 SOTU

“Still, in this economy, a high school diploma no longer guarantees a good job. I urge the Senate to follow the House and pass a bill that will revitalize our community colleges, which are a career pathway to the children of so many working families. To make college more affordable, this bill will finally end the unwarranted taxpayer-subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants.”
–Barack Obama, 2010 SOTU
“We will help an additional 200,000 workers to get training for a better career, by reforming our job training system and strengthening America’s community colleges. And we will make it easier for Americans to afford a college education, by increasing the size of Pell Grants.”

–George W. Bush, 2005 SOTU

“That’s why we’re working to lift the value of a family’s single largest investment – their home. The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 on mortgage payments. This year, we will step up re-financing so that homeowners can move into more affordable mortgages.”
–Barack Obama, 2010 SOTU
“On housing, we must trust Americans with the responsibility of homeownership and empower them to weather turbulent times in the housing market. My administration brought together the HOPE NOW Alliance, which is helping many struggling homeowners avoid foreclosure. And Congress can help even more. Tonight I ask you to pass legislation to reform Fannie Mae and Freddie Mac, modernize the Federal Housing Administration, and allow State housing agencies to issue tax-free bonds to help homeowners refinance their mortgages. These are difficult times for many American families, and by taking these steps, we can help more of them keep their homes.”

–George W. Bush, 2008 SOTU

“By the time I’m finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need. Small business owners will continue to drop coverage altogether. I will not walk away from these Americans, and neither should the people in this chamber.”
–Barack Obama, 2010 SOTU
“Our Nation’s health care system, like our economy, is also in a time of change. Amazing medical technologies are improving and saving lives. This dramatic progress has brought its own challenge, in the rising costs of medical care and health insurance. Members of Congress, we must work together to help control those costs and extend the benefits of modern medicine throughout our country.”

–George W. Bush, 2004 SOTU

“Keeping America competitive requires affordable health care. Our Government has a responsibility to provide health care for the poor and the elderly, and we are meeting that responsibility. For all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need.”

–George W. Bush, 2006 SOTU

“Now if we had taken office in ordinary times, I would have liked nothing more than to start bringing down the deficit. But we took office amid a crisis, and our efforts to prevent a second Depression have added another $1 trillion to our national debt. I am absolutely convinced that was the right thing to do. But families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I’m proposing specific steps to pay for the $1 trillion that it took to rescue the economy last year.”
–Barack Obama, 2010 SOTU
“Many of you have talked about the need to pay down our national debt. I listened, and I agree. We owe it to our children and grandchildren to act now, and I hope you will join me to pay down $2 trillion in debt during the next 10 years.”

–George W. Bush, 2001 SOTU

“Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will.
We will continue to go through the budget line by line to eliminate programs that we can’t afford and don’t work.”
–Barack Obama, 2010 SOTU
“Just as we trust Americans with their own money, we need to earn their trust by spending their tax dollars wisely. Next week, I’ll send you a budget that terminates or substantially reduces 151 wasteful or bloated programs, totaling more than $18 billion. The budget that I will submit will keep America on track for a surplus in 2012.”

–George W. Bush, 2008 SOTU

“In 2 weeks, I will send you a budget that funds the war, protects the homeland, and meets important domestic needs while limiting the growth in discretionary spending to less than 4 percent. This will require that Congress focus on priorities, cut wasteful spending, and be wise with the people’s money. By doing so, we can cut the deficit in half over the next 5 years.”

–George W. Bush, 2004 SOTU

“My budget substantially reduces or eliminates more than 150 government programs that are not getting results, or duplicate current efforts, or do not fulfill essential priorities. The principle here is clear: a taxpayer dollar must be spent wisely, or not at all.”

–George W. Bush, 2005 SOTU

“Now, even after paying for what we spent on my watch, we will still face the massive deficit we had when I took office. More importantly, the cost of Medicare, Medicaid, and Social Security will continue to skyrocket. That’s why I’ve called for a bipartisan, Fiscal Commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. This can’t be one of those Washington gimmicks that lets us pretend we solved a problem. The Commission will have to provide a specific set of solutions by a certain deadline.”
–Barack Obama, 2010 SOTU
“So tonight I ask you to join me in creating a commission to examine the full impact of baby boom retirements on Social Security, Medicare, and Medicaid. This commission should include Members of Congress of both parties, and offer bipartisan solutions. We need to put aside partisan politics and work together and get this problem solved.”

–George W. Bush, 2006 SOTU

“I’m also calling on Congress to continue down the path of earmark reform. You have trimmed some of this spending and embraced some meaningful change. But restoring the public trust demands more. For example, some members of Congress post some earmark requests online. Tonight, I’m calling on Congress to publish all earmark requests on a single website before there’s a vote so that the American people can see how their money is being spent.”
–Barack Obama, 2010 SOTU
“The time has come to end this practice. So let us work together to reform the budget process, expose every earmark to the light of day and to a vote in Congress, and cut the number and cost of earmarks at least in half by the end of this session.”

–George W. Bush, 2007 SOTU

“The people’s trust in their Government is undermined by congressional earmarks, special interest projects that are often snuck in at the last minute, without discussion or debate. Last year, I asked you to voluntarily cut the number and cost of earmarks in half. I also asked you to stop slipping earmarks into committee reports that never even come to a vote. Unfortunately, neither goal was met. So this time, if you send me an appropriations bill that does not cut the number and cost of earmarks in half, I’ll send it back to you with my veto. And tomorrow I will issue an Executive order that directs Federal Agencies to ignore any future earmark that is not voted on by Congress. If these items are truly worth funding, Congress should debate them in the open and hold a public vote.”

–George W. Bush, 2008 SOTU

Emergency Aid to Seniors? No Way

Social Security benefits are indexed for inflation, but because inflation has been roughly zero for the past year, the adjustment formula implies no increase in benefits this year. Nevertheless,

President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.

Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act.

This is outrageous on four levels:

1. If the president thinks the economy needs more stimulus, he should say that explicitly and have an honest debate.

2. This is the wrong kind of stimulus. Any further stimulus should consist of reductions in marginal tax rates, such as a cut in the corporate income tax (or better yet, repeal).

3. All Social Security recipients already have a moderate guaranteed income, and many have significant income beyond their Social Security benefits. This kind of transfer has no plausible justification as redistribution for the needy.

4. Sending checks to seniors is a blatant attempt to buy their support for Obamacare, which promises to cut Medicare spending substantially.

C/P Libertarianism, from A to Z

Frozen Minds on the Medicare Part B Premium Freeze

This week, Sen. Tom Coburn (R-OK) blocked an attempt by Sen. Max Baucus (D-MT) to move — without a recorded vote or CBO score – H.R. 3631, legislation to freeze Medicare Part B premiums. These premiums are automatically deducted from the Social Security checks of seniors, almost all of whom are enrolled in the Medicare Part B (Supplemental Medical Insurance) program.

Social Security recipients will not receive a COLA increase in their monthly checks beginning January 2010 because inflation between October 2008 and September 2009 was negative. But if Part B premiums increase, the dollar amount of their Social Security checks will decrease beginning in January 2010.

What would happen if the Part B premium were frozen for 2010? Seniors would get a double benefit. First they are gaining from a zero reduction in their Social Security checks even though inflation in 2008-2009 was negative. That means the purchasing power of their Social Security checks will be larger (assuming inflation remains low during the 4th quarter of this year).

On top of that, a frozen Part B premium would provide them with more generous Part B coverage because health care prices became more expensive during 2009 relative to other goods and services.

Senator Coburn’s action in blocking the premium freeze is courageous and correct. In a small but important way, it combats the busting of the federal budget by already generous Medicare Part B benefits that seniors receive — three-quarters of which are funded out of federal general revenues (that is, financed out of taxes paid by younger workers).

Note that the fiscal gimmickry this action prevents is not limited to seniors’ Medicare benefits. Some lawmakers on both sides of the aisle are intent on raiding the Medicare Improvement Fund (MIF) established in 2008 to offset cuts in future physician reimbursements. That fund is actually empty right now — it is not scheduled to receive monies until 2014. But an “advance funding” provision in its legislation would allow lawmakers to make transfers from the Treasury’s general fund as a stop-gap mechanism until MIF’s revenues become available.

Of course, when it comes time to deal with the issue of physician payment cuts, there will be zero dollars left in the MIF. They will have been used up to finance the 2010 Part B premium freeze — and Congress will turn to taxpayers and demand more money to bail out physicians.