How to “fix” Social Security and Medicare

America’s intergenerational letters

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In President Biden’s State of the Union address he asserted Republicans want to cut Social Security and Medicare benefits.  That caused a reaction of boos and catcalls by GOP members of Congress.  Then Biden did what demagogues do best, he goaded Republicans who got on board with the no cuts to both SS and Medicare.  They all rose to applaud Biden. 

In Florida yesterday to drum up support for his hyper spending agenda Biden recounted how Republicans stated they will not propose cuts to the two largest intergenerational letters--Ponzi schemes--ever created. However, the economic literature is vast on why Social Security is a Ponzi scheme.  Economist Robert Murphy provides an overview of the Ponzi SS system.    Medicare has the same structure as SS.  Murphy points out in his essay; even leftist Paul Krugman recognizes that SS is a Ponzi scheme. 

(Biden should be asked if investment firms like Fidelity, Schwab, T. Rowe Price, etc., could offer a retirement program like SS or retiree health benefits like Medicare.  His answer would reveal why he finished near the bottom of his law school class and his intellectual dishonesty.  I recently spoke with one of Biden’s law school classmates who said the president did not spend much time in the library and was known as a “social animal.”  It figures.)

As far as Medicare is concerned, workers are taxed, and the money is used to pay the medical bills of retirees.  There is no individual account where the money grows like an IRA or 401(k).  Money in, money out.  In short, both pay as you go programs are financially unsustainable.  SS was “rescued” under Presidents Carter and Reagan, but the so-called trust fund will be empty in the next decade. 

In other words, another “rescue” will be needed to pay all of SS’s promises to seniors.  There is a way out and is based on free market principles, which would keep the money flowing to seniors for the next couple of decades, at least, and give young and middle-aged workers control over their finances.  It is not privatization of both SS and Medicare.  It is the phasing out of SS and Medicare based on a fundamental principle—personal responsibility. 

The pushback from the left will be deafening.  They do not believe in financial independence nor in individual sovereignty. They believe in authoritarianism, entitlement, and financial fraud. 

Below is a broad outline of what needs to be done.

To phase out both SS and Medicare, we start with the goal of personal responsibility and financial independence.  If Biden and the rest of the big government chorus in both parties object, they should have to defend why Americans should be dependent on two government programs that are unsustainable and morally indefensible for part or all of their income and dependent on a flawed medical payment system in retirement.

Bring it on Joe, Bernie and the rest of the left wingers.

All current SS and Medicare beneficiaries would continue to get their benefits, except for retirees initially making one million or more annually. (They could go in the private insurance market to get medical coverage or self-insure.  Are you listening Warren Buffett, Jeff Bezos, Bill Gates, Michael Bloomberg, the Obamas, the Clintons, et.al.?)  The SS and Medicare funds for retirees would come for federal government asset sales and general revenue   No more subsidies for billionaire and multimillion retirees. 

The next year every retiree with an income of $700,000 the year before would no longer receive SS and Medicare.  The next year the cutoff would be $500,000.  In other words, what an individual/family income was say in 2024, would determine the cutoff for Social Security benefits over 10 years or so.

To sweeten the deal for retires and all workers, all taxes on interest, dividends, and capital gains would be abolished as well as SS and Medicare taxes.  Employees would keep their SS and Medicare taxes to save for their retirement, and employers and employees would then negotiate how to use the employers’ SS and Medicare taxes—higher wages and salaries, money for the workers’ retirement accounts, etc.  In our competitive economy, employers would want to provide their workers with the best possible use of their SS and Medicare taxes. 

All workers would now have to save—what a concept! —for their retirement. 

Workers in their 50s, 60s, and 70s and beyond would be exempt from income taxes as well so they could invest their own money for all their retirement needs, because there would be no SS or Medicare for them or in the near future. 

Both SS and Medicare would be phased out relatively quickly and the US would begin to restore a free market, especially for retirement income and benefits. 

Will this happen?  I wouldn’t hold my breath.  But if we begin to have at least a civil discussion about the role of government in a free society we must conclude both Social Security and Medicare should be phased out as humanely as possible.

Murray Sabrin, PhD, is emeritus professor of finance, Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), and his other BEP publication, Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide (October 2021), provides decision makers with tools needed to help manage their businesses during the business cycle.  Sabrin's autobiography, From Immigrant to Public Intellectual: An American Story, was published in November, 2022.