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Paul Ryan Copyright Chip Somodevilla, Getty Images

U.S. Republicans Sharpen Knives for Retirement Program Cuts

Even before tax reform is complete, Congressional Republicans have started talking about cutting Social Security and Medicare.

CHICAGO, Dec 7 (Reuters) - Traditionally, U.S. politicians avoid talking about cutting Social Security and Medicare close to election time.

Midterm elections are around the corner, but Republicans are making no secret of their plans to go after these critical retirement programs. It is the flip side of their plan to expand the federal deficit by $1.5 trillion through tax cuts for corporations and the wealthy. Cutting spending by these programs might be used to offset some of the cuts.

U.S. House Speaker Paul Ryan has been clear on where he wants to go after tax reform. Late last month he told a televised town hall meeting that Congress must cut “entitlements” to reduce the debt. Likewise, President Donald Trump recently said he wants to focus on “welfare reform” after tax legislation is signed into law.

And Senator Marco Rubio told a Politico conference last month: “We have to do two things. We have to generate economic growth which generates revenue, while reducing spending. That will mean instituting structural changes to Social Security and Medicare for the future.”

If tax overhaul legislation is signed into law, should workers and retirees expect changes to these programs anytime soon? Probably not. Any damage Republicans might do would be phased in over time. Moreover, some of their proposals would have difficulty getting through the Senate without significant support from Democrats - and that appears very unlikely.

We do know what the long-range Republican blueprint for Social Security looks like. Their marquee proposal is the Social Security Reform Act of 2016, sponsored by Representative Sam Johnson. The bill would gradually raise the age when workers can receive their full benefit to 69; under current law, the full benefit age is 66 and headed to 67 for all workers who were born in 1960 or later. It also would add new means-testing that slows benefit growth for higher-income beneficiaries and would adopt a less-generous “chained CPI” annual cost-of-living adjustment (COLA).

The Johnson bill would move retirement policy in the wrong direction. A higher retirement age effectively cuts benefits by raising the bar for receiving full benefits. And the current COLA is not keeping pace with rising healthcare costs.

This bill likely could pass the Republican-controlled House of Representatives next year, but its odds in the Senate would be longer. By law, Social Security cannot be used to offset federal deficits. Its spending has been separated from the federal budget since 1990, with the exception of the program’s administrative costs. And the program has its own dedicated funding source in the payroll tax.

Since Social Security spending has no impact on the federal budget, Senate rules would prohibit consideration of cuts to the program as part of the reconciliation process that allows fast-tracking of spending and revenue legislation. This means that any changes to Social Security would have to be enacted through regular order, which in practice means changes would require 60 votes, not a straight-line approval by Republicans alone.

Congress could continue cutting the Social Security Administration’s administrative budget, as it has done repeatedly in recent years. The cuts have led to severe customer service problems at the agency, including soaring wait times at field offices and on its toll-free help line.

The backlog of pending disability benefit claims is at historically high levels; people filing initial applications wait an average of 240 days to find out if they qualify to receive benefits. And in August this year, people who received determinations on appeal had been waiting an average of 627 days, government data shows.

Long-Range Plan

Medicare is more vulnerable to immediate cuts if the tax bill becomes law. Senate Democrats calculate that Medicare would be cut automatically by $25 billion next year, and by $400 billion over the next decade, under the Statutory Pay-As-You-Go Act of 2010. Under that law, if all the legislation approved by Congress in a given year increases the deficit, automatic spending cuts kick in. Benefits to enrollees would not be cut directly; instead, the cuts would target doctors and hospitals.

Ryan and Senate Majority Leader Mitch McConnell promised this week to avert the cuts through a waiver, although that would require 60 votes.

More broadly, Republicans have repeatedly called for two Medicare “reforms” in the past that would be devastating for older Americans. They would raise the age of Medicare eligibility to 67 from 65, and shift Medicare to a flat premium-support payment, or voucher, that beneficiaries would use to help buy either private health insurance or a form of traditional Medicare.

Pushing Medicare eligibility back would leave millions of Americans to fend for themselves while they wait to turn 67. Premium support gets pitched as a way to bring down program costs through greater competition, but the savings likely will come from shifting costs from the government to enrollees, especially for the traditional fee-for-service Medicare program.

Raising the Medicare eligibility age likely could be done through reconciliation, notes Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, since it would have a budgetary effect. Some elements of premium support also could be done through reconciliation, he thinks. “Ultimately it would depend on decisions by the Senate parliamentarian, which are not predictable,” he said.

Meanwhile, Democrats are moving sharply left on issues like Social Security and healthcare. For example, it is telling that every Democrat in the Senate who is considering a run for president in 2020 co-sponsored the Medicare for All Act introduced recently by Senator Bernie Sanders.

That will make for some very clear choices for voters in the 2018 midterms, and in 2020. (Editing by Matthew Lewis)

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