Categories

Tag: benefit formula

Are Entitlement Spending Cuts Bad for Young People?

Almost everyone agrees that without significant entitlement program reform, there is little hope for a solution to the looming decade of out-of-control deficit spending. That said, there is little agreement on how to do so. The inclination on the right is to cut spending; the inclination on the left is to raise taxes.

Critics of proposals to reduce spending claim that younger workers will be short-changed. For example, when Paul Ryan proposed to reform Medicare by making the federal government’s contribution (“premium support”) grow less rapidly than the rate of medical inflation, critics charged that this would shift costs to future retirees.

What the critics missed: If future Medicare benefits are smaller, then the taxes and premiums needed to pay for Medicare will also be smaller. In other words, Medicare benefit cuts produce partly offsetting taxpayer gains. Take the cuts in Medicare spending already enacted as part of ObamaCare. According to a National Center for Policy Analysis report by our colleagues Courtney Collins and Andrew Rettenmaier, lower taxes and premiums will offset about one-fourth of the benefit cuts for today’s 65-year-olds. They will offset almost one-half of the benefit cuts for 45-year-olds.

Continue reading…