Recently, candidate for the Republican Presidential nomination Nikki Haley suggested that the retirement age be raised. Currently, an individual must be 65 years old to receive Medicare and 67 to receive Social Security. Haley’s position seems to be a very unpopular solution to the problem that both programs will be insolvent within the next 10 years or sooner. It turns out her suggestion is the least bad solution.
Right now, the public debt, which is the accumulation of all annual deficits, is approaching $34 trillion dollars. The annual interest expense on that debt is nearly $500 billion. As the existing debt is re-financed at higher interest rates and as more deficit spending occurs, the annual interest expense will reach $1 trillion. This is unsustainable and places a huge burden on future generations.
Public debt represents a deep financial hole for the country. Of course, the first thing to do when stuck in a deep hole is to stop digging.
To stop digging the federal government must find a way to reduce or eliminate annual budget deficits. That is very difficult to do.
One way to eliminate the deficit is to raise taxes. Most Americans won’t approve of that because taxes are already too high and because higher taxes will slow economic growth. Regardless of what any economist may say and regardless of any study produced, it is a simple fact that higher taxes will slow economic growth.
Personal income taxes can be as high as 37%. The Social Security tax is already 12.4% of wages. Medicare tax is 2.9%. Households pay a 6% to 7% sales tax in almost every state on nearly everything that is purchased. Then there are property taxes on the home, excise taxes on some goods, estate taxes and special taxes built in the price we pay for some goods.
Raising taxes won’t work.
We could decrease spending, but that too is difficult. With 60% of government spending going to entitlement programs like Social Security and Medicare and almost 10% going to pay the interest on the public debt, there is little area to cut.
Since the entitlement programs account for the majority of spending that is where spending must be reduced. Cutting benefits to the elderly will never pass Congress and it simply is not fair. Cutting benefits is not the solution. And raising taxes is not a solution.
There is, in fact, no good solution to solving the spending on entitlement programs problem. When there is no good solution to a problem, the next best thing to do is to find a solution that is the least bad.
Haley and some other GOP candidates like Donald Trump and Ron DeSantis have suggested that the retirement age be gradually raised to 70. That will decrease the future spending on Social Security and Medicare since people will be retiring later.
At the same time, it will increase tax revenue since people will now work and pay taxes until they are 70 rather than leaving the work force at 67. The increased tax revenue and the decreased spending will make the programs solvent again.
Some will argue that retiring at 70 is simply not fair. People want to enjoy their retirement years and still be young enough that they can do the things they want to do. But even retiring at 70 will still leave plenty of time for retirement. And 70 is still young enough to do what an individual wants to do.
When Social Security was implemented in 1935, an individual retired at 65. The average life expectancy was 67 so Social Security funded retirement for only two years.
Similarly, when Medicare was passed in 1965 an individual became eligible at the age of 65. The life expectancy was 70 years old, so Medicare provided benefits for five years.
Today life expectancy has increased dramatically. Most people today will live into their late seventies. Many people are already living well into their 80s and 90s, with some living to be more than 100 years old. Entitlement programs can’t fund 20 or more retirement years.
The Social Security Administration says someone retiring today should plan to live for 20 years. Some Futurists say that the person who lives to be 150 years old has already been born.
The point is that with life expectancies increasing, the eligibility age to receive taxpayer-funded entitlements must also increase. Raising the eligibility age to 70 is a good start.
Nikki Haley is right on this one.
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