Fears of Social Security and Medicare’s Demise

Tagged: , , , . | Category: Blog

April 24, 2012

The annual report on Social Security, published Monday, stated that the retirement program “is on track to go bankrupt three years earlier than expected if reforms are not made,” reports Rachel Younglai and Glenn Somerville for Reuters.  The funding for Medicare similarly appears to be depleting quickly.  Social Security, the report projected, would begin to run out of money for retirees’ pension checks in 2033, while Medicare would run out of funding entirely by 2024.

These projections relate closely to the fact that baby boomers, 78 million Americans born between 1946 and 1964, began retiring last year.  As they continue to do so, the strain on both Social Security and Medicare will increase.

Younglai and Somerville quote two trustees of Social Security as warning lawmakers that they must act quickly in order to prevent the demise of the program.  Because a large portion of the funding for Social Security comes from payroll taxes, a current suggestion for how to keep the program afloat is to raise payroll taxes.  Right now, the payroll tax on employers and employees is 12.4 percent.  The recommendation is to raise the percentage collected to 16.7.  This 4.3 percent increase is estimated to cover the growing costs of Social Security so that the benefits will continue to be paid in full.

Congressmen also have considered raising the retirement age or cutting certain benefits to the wealthiest citizens.  Because of the impending elections, however, it is unlikely that any decisions will be made regarding these issues, Younglai and Somerville report.  The most urgent issue, trustees of the Social Security fund reported, was the disability insurance program, whose funding likely will be depleted by 2016.

In terms of Medicare, Republicans are pushing to overhaul the entire program, while Obama and the Democratic party claim that his new health care plan has added eight more years of life to its funding.  Because both political parties strongly disagree on a solution, Younglai and Somerville explain again that it is unlikely for any changes to be made before the next election.

Bringing the Article into the Classroom

Teachers may begin by asking the students how the article relates the current U.S. economy to funding both Social Security and Medicare.  Why does the state of this country’s economy influence the funding of these two federal programs?  What other issues does the article point out as influencing the potential demise of Social Security and Medicare?  The teacher may also ask students to come up with alternative federal budgets, tax plans, or even Medicare and Social Security distribution plans that take into account the depleting funds.  Finally, the teacher may ask students how the issues raised about Medicare and Social Security relate to the federal budget and federal deficit.

Posted by: | 1 Comments

New Battles Over the Budget

Tagged: , . | Category: Blog

April 18, 2012

Despite the fact that automatic cuts to the federal budget still are set to begin in January, House members continue to propose alternative plans.  The most recent proposal comes from the Republicans: a call for $34 billion in cuts to the food stamp program over the next decade, reports Brian Faler in Businessweek.

This proposal comes as part of a larger plan to make $261 billion in spending cuts proposed last month by House Republicans.  This proposal came with an order to a number of congressional committees to come up with spending cuts recommendations by April 27.  This food-stamp cut is on proposal coming from that request.

According to Faler, the food-stamp program will cost about $80 billion this year.  House Agriculture Committee Charman Frank Lucas is quoted as saying that this plan will make the food-stamp program more efficient: “It’s basically closing loopholes; it’s tightening things up; it’s reflecting the budgetary times we’re in.”

In response to this proposal, Democrats expressed outrage, Faler reports.  Representative Peter Welch, a Vermont Democrat, explained: “We’re literally going to take it out of the mouths of babes.”

Representative Sander Levin, another Democrat, similarly scolded the Republicans for such a plan: “In their zeal to cut taxes for the very wealthy, House Republicans continue to put the burden on the backs of children, the elderly and the disabled.”

Retirement benefits also are a target for cuts in this Republican proposal, reports Faler, though he speculated that food stamp cuts would be “among the most contentious proposals.”

Bringing the Article into the Classroom

After reading this article in class, a few general questions to ask students are: does this article seem to present a bias?  Is there a difference between biased reporting and reporting that focuses on a single group’s opinion?

More specifically, this article lends itself to a discussion on the different ways the government may or may not operate during an election year.  In the article, Frank Lucas is quoted as saying that: “Everything that happens in an even-number year is always an election issue.”  What do students make of this quote?  Do they agree or disagree with him, and why?  You may even give students an opportunity to speculate what the discussions surrounding the budget would be if it were not an election year.  Another point of consideration is: is it possible to avoid turning every issue into an “election issue” in an even-number year?

Posted by: | 0 Comments

New Plan to Reduce Deficit Continues

Tagged: , , , . | Category: Blog

March 28, 2012

A proposal closely resembling the Simpson-Bowles Plan from the 2010 deficit-reduction commission continues to move forward in Congress, reports Damian Paletta for the Wall Street Journal.  Though many expect the plan to fail any vote in Congress, it signifies the possibility of new bipartisan effort.

Reps. Steve LaTourette (R., Ohio) and Jim Cooper (D., Tenn.), have sponsored the new bill that plans “to reduce the federal budget deficit by more than $4 trillion over 10 years through a combination of spending cuts and tax increases,” Paletta explains.  This plan joins a number of budget proposals made in the past few weeks, though this one is the first with any bipartisan support.

This proposal cuts the deficit in a number of ways.  First, it would lower tax rates while simultaneously eliminating or limiting tax breaks.  These changes would account for almost $1 trillion in deficit reduction over 10 years.  With regards to social insurance, the plan would set a limit on the long-term growth of federal health care spending, as well as make large changes to Social Security and other entitlement programs.  The plan also would ask congressional panels to make cuts to federal programs that would amount to $300 billion.

Paletta reports that, thus far, at least three Republicans and four Democrats in the House support this plan.  This bipartisan support is one instance of a new effort from both parties to negotiate the budget ahead of the November elections.  Even so, both the White House and the Republican leadership have offered alternatives to this plan. The projections of the plans are given the graph below.

The Republican budget proposal, presented by Rep. Paul Ryan (R., Wis.) last week, restructures Medicare and Medicaid and does not include any tax increases.  Mr. Ryan, commenting on both plans, said: “I applaud my colleagues for working in a bipartisan manner in an effort to address Washington’s fiscal crisis.  Unfortunately, the proposal fails to confront the key driver of the debt: the explosive growth of government spending on health care.”

A White House official, in response to the Ryan Budget, said that it “protects massive tax cuts for millionaires and billionaires… [it was] understandable that some members of the Republican Party appear to want to take a more reasonable approach.”

Bringing the Article into Your Classroom

This article raises a number of interesting questions to discuss with your students: First, what do they think about the newest, bi-partisan budget proposal? Second, why do they think the Republican Party leadership will not support a plan proposed by House Republicans (with Democrats)? In the same vein, why has the White House given its own proposal, rather than supporting the Democrats who have helped create this plan?  As students, do they support one plan over another? Why?

Posted by: | 0 Comments

The End of Bipartisanship?

Tagged: , , . | Category: Blog

March 20, 2012

Though the budget is always a contentious issue, most members of Congress thought that it was last year’s issue.  A number of Republicans want to renege on deal made months ago with Democrats, reports Steve Benen for Rachel Maddow’s MSNBC blog.

A number of conservative Republicans have expressed concern that government-spending levels still are too high despite last year’s extensive debt-limit debate.  A few weeks ago, Majority Leader Eric Cantor (R-Va.) met with a number of Republicans who no longer support the August agreement and urged them to reconsider their position.

Benen reports that meeting did not come to any resolution, and that the group plans to “submit a budget resolution with spending levels below the agreed-upon levels.”  Benen goes on to say that despite the fact that Democrats will reject this alternative plan, the GOP still plans to pick a fight.

A possible government shutdown is imminent, warns Benen.  When the Congressional Budget Office provides with Budget Committee with estimates for the upcoming year (expected for next week), the Committee will consider how to proceed.  Those numbers will help the Budget Committee determine how to approach both parties.

Many congressmen have expressed frustration that GOP members are considering ignoring their party’s leadership. As such, Benen quotes Sen. Patty Murray (D-Wash.):

If House Republicans walk away from the agreement their own Speaker made less than a year ago, then they will show that a deal with them isn’t worth the paper it’s printed on…Republicans are playing with fire here, and I urge them to not cave to their most conservative members and to stick to the budget levels we already agreed to last year.

In the Classroom

This article lends itself to a discussion on bipartisanship in Congress.  The teacher may want to structure the lesson around an examination of the Democratic Party’s ideology for government spending and taxation in comparison to that of the Republican Party.  Is there any area of the budget on which the two parties agree?

The teacher also could create a structured debate in which the students are asked to create and then compromise on a budget.  First, students should be given a chart of the general sections of the budget.  Then, the students should be split into Republicans and Democrats and then asked to spend some time creating a budget according to their party’s ideology.  Have each group present their budget to the other and then examine the differences.  Finally, ask students to attempt a compromise without straying too far from their party line.  Whether or not they reach a compromise, the struggle within the discussion to reach that point should demonstrate to students why bipartisanship is never simple and why it may isolate the extreme members of either party.

Posted by: | 0 Comments

Though the Supercommittee Isn’t Back, Its Negotiations May Be

Tagged: , , . | Category: Blog

February 28, 2012

The supercommittee may be gone, but it certainly has not been forgotten.  House Minority Whip Steny Hoyer of Maryland made that point clear in his address on Capital Hill on Tuesday, reports John R. Parkinson and Carson McKinlay for ABC News.  Hoyer stated that Congress should replace the automatic spending cuts set for the end of the year with a plan similar to the one proposed by President Obama and House Speaker John Boehner last summer (which failed in negotiations).

Hoyer explained that he believed the deficit posed a tremendous danger for this country, but that the current plan did not adequately address the country’s economic needs.  Referring to the automatic cuts, he explained:

Simply walking away from sequestration would be waving the white flag in the face of [the Congressional Budget Office’s] projection of a dismal fiscal future.  However, sequestration remains an irrational response.  It was the blunt instrument established to force both sides to the table to keep them there… It [the automatic spending cuts] should be replaced, but replaced only by the kind of big, balanced solution the Joint Select Committee [A.K.A. the supercommittee] was supposed to have produced.

In his speech, Hoyer went on to assert that the automatic cuts were never meant to happen.  The plan simply existed in order to force both sides to begin negotiations.  The additional fact that the cuts are not scheduled to begin until the end of the year also indicated that there still is time to agree on a new deal.  He explained that there must be a compromise between an increase in the amount of money the government collects (through taxes) and cuts in spending.

In Your Classroom

This article gives one Congressman’s opinion for what should happen next in the plans to cut the deficit.  Hoyer, as a Democrat, represents the party line, which is explored further in this article.  You may want to use the information provided in this article to create a graphic organizer with your students that examines the different stances Republicans and Democrats take on the appropriate action for Congress to cut the deficit.

Alternatively, you may use this article as a jumping-off point for a web-quest which would explore what Republican Congressmen are saying about the deficit reduction plan.  You may ask your students to see if there are: direct responses to Hoyer, similar statements made by Republican Congressmen unrelated to Hoyer’s response, and other Democratic statements.

In a discussion on this article, you may want to ask the following questions:  Why has Hoyer chosen this point in time to make an address about the deficit?  Why might he think that asking Congress to pass a plan that failed in negotiations over the summer would be reconsidered (and passed) now?

Posted by: | 0 Comments

Campaigning and Cutting the Deficit

Tagged: , , , , , , . | Category: Blog

February 23, 2012

In less than one year, this country will vote to elect a new President.  As the Republican candidates spar in frequent debates, campaign advertisements, and other modes of publicity (as well as through the formal primary elections), Obama’s campaign team also has entered the public eye.  Rather than differentiating Obama from the Republican candidates through his stance on social issues, the Obama campaign has decided to look at which candidate would cut the deficit the most, reported Devin Dwyer for ABC News.

The Obama campaign recently released a memo that analyzed the budget proposals of Mitt Romney and Rick Santorum, the two frontrunners in the Republican primaries.  Dwyer reports:

Obama aides, citing studies from the Tax Policy Center and Center on Budget and Policy Priorities, conclude Romney’s public budget proposals would add $175 billion a year to the deficit.  They claim his proposed tax cuts and increased defense spending would not be adequately offset by as yet unspecified spending cutes the size of which are deemed ‘simply not plausible.’  The memo also claims Santorum’s plan would add $990 billion to the deficit in 2015.

In contrast to this memo’s conclusions, both Romney and Santorum have stated that they planned to cut government spending as President.  In an email to ABC News, Dwyer reports, Romney campaign spokeswoman Andrea Saul “did not directly refute” this memo’s analysis.  Rather, she highlighted the fact that, during the Obama presidency, the deficit has grown by over $5 trillion.

Bringing This Article into the Classroom

Dwyer’s article points to the fact that Obama’s campaign has decided to attack both Romney and Santorum for their proposed budgets and their effect on the federal deficit.  In a class discussion, you may ask your students why they think the Obama campaign is choosing to focus on the federal deficit as a campaign strategy rather than simply focusing on social issues?

This article also lends itself to a discussion on the different approaches Republicans and Democrats take to taxing and spending.  By examining the general philosophical differences of small vs. big governments, students will have a greater appreciation for why the Obama campaign sees their memo as an effective attack on the Romney and Santorum campaigns.

Posted by: | 0 Comments

The Deepening Deficit

Tagged: , . | Category: Blog

February 17, 2012

The Republicans and Democrats reached an agreement this week, but, according to Stephen Dinan in The Washington Times, only Obama was “taking a victory lap.”  The two parties agreed and passed a payroll tax cut which will result in a $100 billion increase in the federal deficit.

The positive fact that the two parties agreed seemed to outweigh the negative result of the increasing deficit.  Dinan quotes both a Republican and a Democrat complaining about the result:

“’Why is it that the only time we can come together and reach an agreement, it’s in a manner that increases the deficit or explodes spending?’ Said Rep. Jeff Flake, Arizona Republican.  ‘That’s enough to make the country cry for more partisanship.’

“Senator Mark Warner, Virginia Democrat, said lawmakers reminded him of Wimpy, the character from Popeye who was always trying to mooch off of others, with his catch-phrase ‘I’ll gladly pay you Tuesday for a hamburger today.’ ‘Wimpy once again has won out,’ Mr. Warner said on the Senate floor Thursday…”

The exact terms of the deal are as follows: “A 2 percentage point payroll tax holiday would be extended through the end of this year, as would enhanced unemployment benefits and full reimbursement levels for doctors who treat Medicare patients.”  According to the Congressional Budget Office’s projections, this deal will add $101.1 billion to the 2012 deficit and $40.2 billion to the deficit for the following year.  Taking into account future spending cuts and higher fees, the 10-year net deficit is projected to be $89.3 billion.

Bringing the Article Into Your Classroom

This article focuses primarily on the consequences of compromise: when two opposing sides want to make an agreement, both need to make concessions.  When one party wants to cut taxes, and another party wants the government to spend more, the net result is a larger bill for the government to pay.

In order to discuss this idea in the classroom, it may be useful to set up a role-play in which the students must negotiate the school budget.  Split the class into two teams and give each time a list of priorities (one team wants better cafeteria food, one team wants new computers, etc.).  Have the students consider what aspects of the budget they would be willing to concede and which demands they will not back down from.  Create a structure in which they could debate the budget and then reflect upon the process of negotiation.

Alternatively, this article lends itself to considering what the two political parties in Congress considers its policy priorities.  You may ask students to consider what the seeming differences are between Republicans and Democrats based on this article, and the ways in which both parties seem to consider and not consider the near and distant future.

Posted by: | 0 Comments

Ben Bernanke Talks Deficit Reduction

Tagged: , , , , . | Category: Blog

February 8, 2012

Ben Bernanke, the Federal Reserve Chairman, expressed concern to legislators over the spending cuts and tax increases scheduled for 2013, reports Suzy Khimm for the Washington Post.  In his testimony on Tuesday, Bernanke discussed the current economic climate and gave his projections for the coming year.  He noted that, while the country’s economy has recovered more slowly than everyone had hoped, he remained optimistic for the coming year.

Forecasts given for 2012’s unemployment rate predicted a number far higher than what has proven to be true thus far.  According to the most recent jobs report, the United States added 243,000 jobs in January.  These additions brought down the unemployment rate to 8.3%.  Bernanke attributed this decrease, at least in part, to the recent revival of manufacturing in this country: “US manufacturers have become increasingly competitive on a global stage.”

Despite his lauding American manufacturers, Bernanke’s overall message was grim: he believed that the 2013 drastic fiscal changes (the expiration of the Bush tax cuts and the spending reductions triggered by the Budget Control Act) would slow economic recovery further.  Senator Pete Sessions (R-Ala.), questioned Bernanke and his claim that it was less important to reduce the deficit than to continue to encourage recovery and growth.  Bernanke’s response was simple: “What we want to do is have a credible, strong plan so that the economy doesn’t hit a huge pothole.”  Bernanke thus encouraged a deficit reduction plan that could phase in over a longer period of time than the automatic one set for January 2013.

In the Classroom

This article may be used in a variety of ways.  It may be introduced simply as a way to keep students apprised of the opinions being heard by Congress about the budget deficit.  It may also be used to introduce Ben Bernanke and the Federal Reserve, if you have not done so previously.

The article also may be used in a debate on the merits of the current plan for deficit reduction.  Bernanke provides an argument against the plan – he says that it occurs in too short a time and will slow overall economic recovery. What do your students think? Which topic is more important: economic recovery or deficit reduction? Is it possible to have one without the other?

Posted by: | 0 Comments

Is Government Debt Analogous to a Family Mortgage?

Tagged: , , , . | Category: Blog Default

February 1, 2012

Paul Krugman, a 2008 Nobel Prize winner in Economics, wants you to stop comparing the federal debt to the debt of an individual.  In a recent New York Times op-ed piece, Krugman reframes this issue to explain why he believes that the federal debt is not the most urgent issue this government faces.

Krugman begins by pointing out that, despite the fact that the unemployment rate has been “disastrously high” the past two years, Congress has focused its energy on reducing the budget deficit.  Krugman lambasts both Congress and the economists with whom Congress has been consulting:

When people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about – and the people who talk the most understand the least.  Perhaps most obviously, the economic ‘experts’ on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits.

Krugman goes on to point out what specifically these economists have gotten wrong: in the short term, they claimed that the budget deficit would lead to increasing interest rates, though interest rates actually have dropped over the course of Obama’s presidency.

In the long term, Krugman claims, governments do not have to pay back their debt in the way individuals must pay back personal debts.  He explains: “An over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.” As discussed in earlier posts, the federal government borrows money by issuing bonds.  Though foreigners own many of these bonds, for each dollar of American debt claimed by foreigners, Americans have 89 cents worth of claims on foreigners.  In addition, American investments in foreign assets are more risky than foreign investments in the U.S. – which means that Americans earn more from their assets than foreigners do.

Krugman eventually does concede that debt is a problem without modest increases in taxes – and that raising taxes does have a cost.  He concludes by saying that the government may only continue to maintain a high debt if it also raises taxes.  Since this government is so anti-tax, however, it is unlikely that taxes will be rising anytime soon.

In order to introduce this article into the classroom, you may first want to introduce Krugman with a brief biography to contextualize his claims.  You may then ask the following discussion questions: What economic principles does Krugman introduce in this article (for example, do collecting taxes lead to more or less productivity)?  What are alternative opinions to what Krugman claims? Because Krugman makes many bold statements in his article, what alternative opinions have been discussed in this class in the past? What opinion/idea about the value of having a budget deficit makes more sense to you?

Posted by: | 0 Comments

The State of our Economic Union

Tagged: , , , , . | Category: Blog

January 25, 2012

On Tuesday night, President Obama addressed Congress in the annual State of the Union speech.  The transcript of his speech may be found here. In just under an hour, Obama called attention to his accomplishments, described his plans for the future, asked Congress to try to overcome partisan difference to get things done, and invoked the American Dream as the ideal to which our country is striving.

During the speech, Obama only mentioned the federal deficit twice.  The first mention was buried within the first ten minutes.  He declared: “American manufacturers are hiring again, creating jobs for the first time since the late 1990s.  Together, we’ve agreed to cut the deficit by more than $2 trillion.  And we’ve put in place new rules to hold Wall Street accountable, so a crisis like this never happens again.”  In this mention, the agreement to cut the deficit seems to be just another of his many accomplishments.  It merely is part of a list, sandwiched between job creation and new regulations for Wall Street.

The second mention is much more informative and complete. He explains:

“When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings.  But we need to do more, and that means making choices.  Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans.  Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households…As I told the Speaker this summer, I’m prepared to make more reforms that reign in long-term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.  But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes.”

According to Obama, the key to lowering the deficit is twofold: the government needs to act more frugally and reform policies that are expensive, and it needs change the tax code so that wealthier citizens pay more.

If your students were not required to watch the State of the Union, you could assign students to read parts of the speech or articles describing the speech.  Due to the fact that the State of the Union may be found on so many different media, you may assign students to pick one medium to watch/read/listen to the speech.

You may begin a discussion on Obama’s speech by asking: how did Obama first bring up the government debt? Why does he mention it within the context in which he does?  When else does Obama address the federal deficit, and what does he propose to address the deficit?  Why did Obama only dedicate two sentences to addressing an agreement made by Congress that took months to decide?  What do you, as students, think about his proposals? What are alternatives to what he proposed?

Because Congress currently has a Republican majority, many critics claim that Obama will not be able to get any of his proposals done during his last year of this term.  Others say that this State of the Union was the Obama’s response to the Republican primary candidates’ criticism.  What do your students think about these two criticisms?

Posted by: | 5 Comments