We cannot escape America’s rising nationalism. Ever-
-distant Russia and China are marching
further away to their own drumbeat, both headed by strong nationalist leaders. We’re
seeing our close U.S. allies, Japan and Turkey becoming more independent and
autocratic. Closer to home, the European Union continues to disintegrate in
slow motion. Greece’s imploding bankruptcy will soon claim its financial
membership to the EU. Followed by the freefall collapse of Italy’s banking. However,
the coup de grâce will come on May 7, when
France selects one of two rightwing contenders—no way Brexit, no way Trump,
take away Italy, take away France—the fate of the EU will be sealed. But we
have our own problems here in the US.
A class war has erupted, pitting older adults against the young and the military-industrial complex. As dramatic as this sounds—picture flash mob with walking canes in the air in lieu of pitchforks—the facts are starkly sobering. With the election of Donald Trump, the crystal ball has long been broken. Little conjecture is required however, as we have been inching toward a class clash for more than five decades. On January, it will culminate with a refreshed zeal. And now there is a public acceptance that “there will be blood’—the economic blood of the poor and elderly.
Trump’s “Contract with the American Voter”1 will, if fully enacted, bring an end to the Affordable Care Act (Obamacare), replacing it with Health Savings Accounts (HSAs). Obviously, serious repercussions will ensue for Medicaid—a joint state and federal government program—the backbone of Obamacare. Medicaid will be radically changed by giving states unfettered authority to decide what services they need to offer. The stark inequities that exist today across states will become even more unequal for services to the poor and aged. An immediate concern becomes the shift of funding for health care through HSAs. Since HSAs are not available for seniors on Medicare or those who are claimed as dependents, the replacement program will not serve them. With a ceiling of tax deferred contribution of $6,750 per month, rich middle-aged adults become the sole beneficiaries.
Clutching onto the coat tail of his master, Paul Ryan, the Speaker of the House during a limited surge in popularity, reignited his war on Medicare. Ryan—himself the beneficiary of Social Security survivors benefit as a young adult—wants to “modernize” Medicare—the Federal Government’s single most expensive program. Within this program, the largest part is Medicare Advantage (MA). MA—a type of privately run, subsidized managed health care—consumes more than a quarter of Medicare’s total budget. Through MA, with a public option, the new administration can easily privatize Medicare.
Let’s face it, the details all seem terribly boring. And that is the beauty of this type of war—it remains imperceptible to most people. The war America faces remains nuanced, hidden because most people are looking for binary answers. The fact that it is fought with the money generated by and for older adults makes it that more obscure.
The finances of the U.S. government come not from Apple, Google, Goldman Sachs, Chevron, and other US industries and services that generate an annual turnover of $18.5 trillion—but from your average Joe. The poorest residents (not all of them citizens) pay for our government—a trend that started with Ronald Reagan and that has continued even through four administrations. Both parties have colluded against the poor.
In 2016, most of the federal budget comes from Income Taxes (45% of total budget) it is quickly being overtaken by payroll taxes (35%). At one point in 2008, at the peak of the most recent depression, our payroll taxes became the primary source of income for the federal government. Out of all the economic activity of the United States, the federal budget was primarily funded by people’s contributions to their Social Security and Medicare. We need to let that sink in.
In contrast to this increasing reliance on our insurance payments to run the government, corporate taxes have been virtually abolished (less than 10% of our total federal budget). In addition, estate, excise and all other types of taxes make-up less than 10% of the federal budget. Payroll taxes—which comprise 15.3% of earnings which is shared equally by the employee and the employer—are not meant to be taxes, but to contribute to our insurance funds (hence why it is called the Federal Insurance Contribution Act-FICA). But the rich do not pay FICA, as it is not imposed on investment income such as rental income, interest, or dividends. The rich are also protected from paying their fair share of FICA—payroll taxes. Because in 2016 we only pay part of FICA—Social Security taxes (OASDI) —on income of less than $118,500 (the amount remains constant at this level) the more you earn the smaller the percentage becomes. As such, OASDI taxes are regressive. Rich people, when they do pay payroll taxes, pay a smaller percentage then US residents who earn less than $118,500.
This would not be all bad, except that FICA funds which are supposed to be saved in trusts for our old age (OASDI-Old Age, Survivors and Disability Insurance) and medical coverage (HI-Hospital Insurance funds Medicare) are instead all spent as part of the budget, every year.
Numerous attempts to stop this misappropriation have to date failed. Allen Smith, a professor of economics, emeritus, from Eastern Illinois University has waged a valiant fight to publicize the illegality of how these funds are misappropriated. Starting in 1969 in the Johnson Administration, payroll taxes were co-mingled in a unified federal budget. To stop this and assure that these payroll taxes would be invested in Baby Boomers’ (1946-1964) benefits, a law was needed. In 1990 the Omnibus Budget Reconciliation Act (OBRA) stopped the use of payroll taxes in the unified budget—the funds were designated as off-budget. But whether payroll taxes are calculated as "on-budget" or "off-budget" remains real only for accounting purposes—in practice, Congress spends payroll taxes, all of the annual budget, and then some each and every year.
As I said, it’s nuanced, except for the large amount of money involved. Payroll taxes are worth $1.07 trillion every year.
The budget clash involves increasing Federal discretionary spending by reducing mandatory spending. The mandatory budget is 60% of the total budget with $4.1 trillion. It is mandatory because there are some obligations that the government has to pay such as, social security, Medicare and also some military personnel costs. Mandatory budget was created in 1935 by the Social Security Act. In contrast, then there is the discretionary budget with $1.15 trillion. This budget is dependent on congressional approval and mainly funds military costs with 54% of discretionary budget. The transformation is to decrease the funds in the mandatory budget and move it to the discretionary budget. Hence the clash between spending on older adult and replacing it with military spending.
By becoming increasingly reliant on payroll taxes—while at the same time reducing the solvency of Social Security and privatizing Medicare—the incoming administration will directly assault poor older adults. Especially with the privatization of Medicare. Health insurance companies are quickly aligning themselves for this bonanza. They are busy consolidating to gain a monopoly. For now, the Justice Department continues to opposing the mergers between Anthem and Cigna and between Aetna and Humana. WellCare Health Plans has also announced its intention to buy Universal American. In less than two months, these mergers are likely to be approved and Medicare Advantage will be their prize. Medicare will be sold to the highest bidder, who will then have a monopoly on our health.
Although we cannot change this policy--which has been evolving for more than five decades--we can, however, make the system more solvent. Congress might adopt a policy of greater equity in the system if it brings more money. Elimination the ceiling for taxing Social Security would represent one big step. Although previously, Medicare (HI) taxes had the same restriction as Social Security, Bill Clinton passed a 1993 law removing the taxable maximum for Medicare--thus making all earnings subject to these taxes. Health Insurance taxes are therefore progressive, but still only represent 2.9% of the income compared to 12.4% of OASDI. By removing the ceiling for OASDI taxes and making it more equitable so that all income—including rental income, interest, or dividends are taxed—then payroll taxes morph into a more equitable income tax. Which is how it is used by the federal government.
Arguments involving pitting of one generation against another are for show. The attack is on the poor and across all generations, since this administration will be selling-out our civic structure of care and social insurance. Our federal insurance payments benefit future generations. Whether couched as an income tax or a payroll tax, we deserve assurances that we are investing in our future as one nation.
© USA Copyrighted 2016 Mario D. Garrett