Notebook > Money

Crisis avoidance

Money | Major presidential candidates don't seem to have a Medicare in the world

Issue: "Saving Isaac," Nov. 10, 2007

Social Security and Medicare make up over a third, in dollar terms, of the government that the next president will lead. The two programs together have over $40 trillion in unfunded liabilities, meaning that's how much will be added to the national debt or raised in taxes if the programs remain untouched.

Given these stark realities, a reasonable observer would expect entitlement reform to be a major issue in this year's presidential race, right up there with Iraq and Supreme Court nominations. That reasonable observer would be largely disappointed.

Only three of the major presidential contenders have offered specific proposals to deal with either program-Democrats Barack Obama and John Edwards and Republican Fred Thompson. Only one, Thompson, has dared to be specific about Medicare, which is by far the more daunting problem.

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Obama and Edwards have focused on raising taxes to address Social Security's looming shortfall. Obama, who only a few months ago said everything other than privatization should be on the table, now says he would not allow any reduction in projected benefits. Instead, he would raise the cap (currently $97,500) on income subject to the FICA tax. Edwards would leave the cap in place but then tax those who make more than $200,000, creating an untaxed "gap" between $97,500 and $200,000. The wealthy, says Obama, should be "paying more of their fair share-a little bit more."

Such rhetoric may play well on the campaign trail, but critics of this approach argue that the Social Security tax-a direct tax on labor-is a job killer. Raising the cap would slow the creation of the high-paying jobs that everyone wants to see created. So Fred Thompson has staked out a different path: He would index increases in Social Security benefits to inflation and not to faster-growing wages. Democrats would call this a cut, but future seniors would receive the same level of real support that today's seniors receive. Thompson also wants wealthy seniors to pay higher premiums for Medicare.

The other major candidates have not been silent on Social Security and Medicare, but neither have they made specific proposals. As the two programs race toward insolvency, such an approach won't work much longer. "If you take tax increases and benefit cuts off the table," David John of the Heritage Foundation told MSNBC, "you are left with wishful thinking."

Balance Sheet

ECONOMY: The Commerce Department last week reported surprisingly strong growth in the U.S. economy during the third quarter. Gross domestic product grew at a 3.9 percent annual rate, the agency said, the strongest growth in more than a year. Analysts had expected the continued fallout of the nation's housing slump to slow the economy, but a jump in business investment apparently made up any lost ground. A report from ADP Employer Services, meanwhile, showed companies adding 106,000 jobs in October.

AGRICULTURE: President Bush on Oct. 31 nominated Ed Schafer, former governor of North Dakota, to be the next secretary of agriculture. Schafer served two terms as governor ending in 2000 and developed a reputation as a free-market conservative. One potential sign of things to come at USDA, one of the federal government's largest departments: He cut the number of state employees during his tenure.

INTEREST RATES: The Federal Reserve offered a Halloween treat to Wall Street, lowering the federal funds rate by a quarter percentage point to 4.5 percent at its Oct. 31 meeting. The trick is to balance support for both growth and price stability, and Fed policymakers hinted after the meeting that investors should not expect further cuts.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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