To Fix Budget Reform Tax Entitlement Before Gutting Medicare

Entitlement reform should attack wealthy people's sense of entitlement, not Medicare, Medicaid, and Social Security.

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For long-term fiscal health, the nation needs to do entitlement reform. But first, there has to be sense-of-entitlement reform.

Entitlements, of course, are those popular federal programs meant to address basic human needs and maintain basic human dignity. Social Security keeps senior citizens from crippling poverty. Medicaid provides healthcare to the poor and disabled. Medicare is a federal healthcare plan for the over-65 crowd. The cost of the programs represents a huge chunk of the federal budget, and there is really no way to balance the budget without addressing those long-term costs. Certainly, the budget cannot be balanced merely by cutting spending that is not part of the entitlement programs. The idea that this can be done without cutting defense spending, either, is just laughable. [Check out a roundup of political cartoons on the budget and deficit.]

But getting rid of Medicare and turning it into a sketchy subsidy program for seniors, as Rep. Paul Ryan has proposed, is unnecessarily drastic and cruel. Costs—especially for Medicare and Medicaid—need to be reined in, but turning the program over to the private market—which is hardly doing a great job keeping health insurance premiums down for the unretired—will not fix the problem. Ryan deserves credit for at least taking on the politically unpopular idea of entitlement reform, but abandoning seniors is the wrong approach. [Vote now: Should Ryan's budget plan become law?]

A better way to close the deficit and start paying down the debt would be to attack the sense of entitlement expressed by wealthy individuals and large corporations, which don’t seem to think they should bear much of the tax burden.

GE, of course, legally avoided paying any federal taxes in the last two years, despite making $5.1 billion in U.S. profit last year. And now, the Associated Press reports in a brilliant and disturbing Tax Day story, the super-rich have seen their average taxes go way, way down—from 26 percent in 1992 to 17 percent in 2007, the last year for which the IRS has done the math. The statistics apply to the 400 taxpayers with the largest adjusted gross incomes—meaning the amount they took in before myriad deductions reduced their federal tax liability. For all taxpayers, the average rate dropped far less dramatically, from 9.9 percent to 9.3 percent.

It begs the question: Who feels entitled? Retired Americans trying to pay for healthcare and living expenses? Or the very wealthy, who have, at least for the moment, retained the big and prohibitively expensive Bush tax cuts, and who use deductions to avoid paying even that rate? [Read Robert Schlesinger: Where did the national debt come from?]

The argument by conservatives is that rich individuals and corporations need the cash to hire workers, improving the economy. But there are companies that made record profits in recent years, when the unemployment rate reached double digits. Since the recession lingered so long, and was so painful, the recovery for working Americans is even harder. Having squeezed even more productivity out of a nervous labor market during the recession, employers have realized that they can get by with fewer people, especially if they scare workers into believing they will lose their jobs. Why should they hire more workers, even if they have the cash to do so? And it’s not even as profitable to actually work for a living than it is to collect cash for passive investment: The top tax rate (whether or not it becomes the actual tax rate) for earned income is 35 percent; capital gains are taxed at just 15 percent.

There’s a problem with entitlement in this country. But federal healthcare and retirement programs aren’t it.

  • Read Schlesinger: Where did the national debt come from?
  • Vote now: Should Ryan's budget plan become law?
  • Check out a roundup of political cartoons on the budget and deficit.