Another Perspective

What Would Reagan Cut?

Social Security and Medicare are not the problem.

By 8.19.11

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The press is trying to paint me as trying to undo the New Deal.… I'm trying to undo the Great Society.
-- Ronald Reagan, in a January 1982 diary entry

As Congress's "super committee" begins its work of trimming $1.2 trillion in spending over the next decade, the pressure is on to overhaul Social Security and Medicare.

To be certain, these two programs place the fiscal health of the country at risk as Baby Boomers retire. Yet current and short-term federal deficits, driven by George W. Bush's spending spree and Barack Obama's blowout budgets, have little to do with Social Security and Medicare.

Contrary to conventional wisdom, these pay-as-you-go programs have been budget-bracers, not budget-busters. In fiscal year 2009, when the federal deficit reached $1.4 trillion, these self-financing programs generated a $121 billion surplus, according to the Social Security and Medicare Board of Trustees. In 2010, the surplus was $32 billion.

These surpluses were no fluke. Since Ronald Reagan's first term, revenue from payroll and self-employment taxes, income taxes on benefits, and Medicare premiums have generated a combined surplus in the four programs that the Board of Trustees oversee: Old-Age and Survivors Insurance, Disability Insurance, Hospital Insurance, and Supplemental Medical Insurance. By itself, Social Security has generated a 25 percent surplus since 1990.

Yes, the surpluses will ultimately dry up and become deficits, due to declining marriage and birth rates. But the Board of Trustees' latest report does not project significant increases in Social Security and Medicare spending, relative to GDP, until the 2020s.

Consequently, if the "super committee" wants to cut the fat, it won't find much in these social-insurance programs, which have paid for themselves for decades. That doesn't mean Social Security and Medicare should run on autopilot; they do need tweaking. But it should prompt the committee to go after the biggest fat producer: the "means-tested" welfare programs of the Great Society. These 185 overlapping programs across six federal departments -- as counted by Peter Ferrara of the Carleson Center for Public Policy -- account for no less than half of current federal deficits.

Thanks to President Obama, means-tested welfare now commands nearly $700 billion in federal resources annually, according to the Heritage Foundation, which estimates that federal anti-poverty spending will total $7.8 trillion this decade. Moreover, unlike New Deal programs, these ever-proliferating Great Society initiatives lack a critical element: reciprocity. To this day, Social Security and Medicare retain this concept; beneficiaries receive no assistance unless they have paid into the system while benefits are determined in part by their contributions and number of dependents.

Accordingly, while Medicare was not adopted until 1965, it remains the only front of the War on Poverty that can be claimed a legitimate heir of the New Deal. Virtually all the remaining weapons of LBJ's domestic war -- including Medicaid and the State Children's Health Insurance Program, Temporary Assistance for Needy Families, and the Low-Income Heat and Energy Assistance Program -- are means-tested and none has a funding mechanism; they simply drain the public treasury. As their recipients have never paid into the system, these programs should never be considered "entitlements" but as discretionary and subject to downsizing.

That distinction should not be minimized; indeed, the contrast between social insurance of the New Deal and the social engineering of the Great Society -- to which Ronald Reagan alluded in January 1982 -- is more than just fiscal.

As a former Democrat who voted for FDR, President Reagan never considered the New Deal legacy in conflict with his economic vision. That's because Social Security is rooted in the explicit social conservatism of the New Deal. It upholds without apology the married-parent family as the social and economic norm; its benefit structure presumes marriage as an economic partnership, provides assistance to widowed mothers, and recognizes the contribution of full-time mothers who do the unheralded work of rearing the next generation. Indeed, when later linked to Medicare, Social Security spearheaded the family-benefits package that the private sector emulated after World War II and which workers today still covet.

In contrast, liberal welfare schemes -- by displacing marriage and fathers from low-income families, a staggering loss for society and the economy -- have left the underclass far less capable of self-reliance. Ironically, the main beneficiaries of the War on Poverty have not been the poor but, as Charles Murray has noted, "the poverty industry -- bureaucrats, caseworkers, service providers, and a grab-bag of vendors in the private sector who plan, implement, and evaluate social programs on government contracts."

The bottom line: America can't afford both New Deal-styled programs and the War on Poverty. It's time to honor President Reagan's 30-year-old insight and signal retreat from the latter with its pernicious social and budget-busting effects. Unless that happens, don't expect anything super from the "super committee."

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About the Author

Robert W. Patterson is editor of The Family in America: A Journal of Public Policy.