Again? COLAs May Face Another Round Of Cuts In Debt Limit Battle

Again? COLAs May Face Another Round Of Cuts In Debt Limit Battle

Debt cutters may be back with more demands to "chain" cost-of-living adjustments (COLAs), along with plans that would make seniors pay higher Medicare costs.  The government's new 2014 federal budget agreement cut COLAs of working-age military retirees, by 1 full percentage point.  While another government shutdown was avoided in January, the new agreement did nothing to lift the federal debt limit on February 7.  TSCL is highly concerned that deficit negotiators may demand more COLA cuts.

The majority of seniors have no leeway to absorb slower Social Security growth or higher Medicare costs —let alone both at the same time.  A new study by the non-partisan Kaiser Family Foundation found that half of all Medicare beneficiaries had incomes below $23,500 in 2013.

TSCL's members and supporters have helped fight off benefit cuts numerous times in recent years, but both Social Security and Medicare are reaching critical tipping points.  The Social Security trust fund that pays disability benefits is in the most trouble — projected to become fully insolvent in less than two years, by 2016.  The Congressional Budget Office recently told Congress that if the trust fund's balance falls to zero and current revenues are insufficient to cover the benefits, the Social Security Administration has no legal authority to pay full benefits when due.  Medicare's Hospital Insurance trust fund will become fully insolvent over the next decade.

At issue is the degree to which both Social Security and Medicare are dependent on borrowing to pay benefits.  During recent debt limit showdowns in 2011 and last year, the Administration warned that the government would not have enough money to cover benefit payments should the debt limit be breached.  While politicians challenged those assertions — ultimately the only means to assure payment with any certainty was lifting the debt limit.

Both Social Security and Medicare trust funds are in deficit and dependent on the non-marketable bonds or I.O.U.s that the trust funds received over the years when the programs were in surplus.  Now as Baby Boomers are beginning to swell the rolls, the government must borrow to redeem those I.O.U.s to provide benefits.  But the growing cost of debt payments threatens to exceed what the government spends on defense, in just ten years.

TSCL believes that some changes are needed to strengthen the program's financing.  According to surveys, more than 78 percent of seniors favor requiring workers with incomes higher than $117,000 to pay Social Security taxes on all of their wages.  Under current law anyone earning more than $117,000 per year pays no Social Security on the excess over that amount.  So someone who earns $1,117,000 pays no taxes at all on the $1,000,000 over $117,000.  The average worker, however, pays Social Security taxes on every dime he earns.  According to Social Security's Office of the Actuary, raising the maximum taxable wage limit would reduce Social Security’s financing deficit by as much as 90 percent.

TSCL believes that to strengthen Social Security everyone needs to pay their fair share, and supports legislation that would increase or eliminate the taxable maximum earnings limit.


Source:  "Income and Assets of Medicare Beneficiaries 2013-2030," Kaiser Family Foundation, January 2014.  "Rising Rates Could Make Interest On U.S. Debt As Big As The Defense Budget," Rob Garver, The Fiscal Times, January 8, 2014.