The election this fall was supposed to be a red wave. Now it looks like that may not happen.
The Republican problem today is no different than it was 50 years ago. Too many Republicans don’t believe in reforming institutions. They think their only role is to oppose whatever the Democrats are trying to do. Most conservative think tanks aren’t much better.
Yet in troubled times, voters want problems solved. Here are some suggestions for policy changes affecting seniors—the group of voters most likely to vote.
Let early retirees re-enter the labor market without losing their Social Security benefits. About 60 percent of those between the ages of 62 and 67 are no longer working. A lot of them lost their jobs because of COVID, and many started taking Social Security. However, if they go back to work or take a part-time job and earn more than $19,660, they will lose 50 cents in benefits for every dollar they earn. When this earnings penalty is combined with the Social Security benefits tax and regular income and payroll taxes, senior workers can face marginal tax rates exceeding 90 percent!
Seniors have skills and talents the labor market desperately needs. We should be encouraging their labor market participation – not taxing it out of existence.
Stop taxing Social Security benefits and retirement savings based on the effects of inflation. Social Security benefits themselves are indexed. But the tax on those benefits is not. When the Social Security benefits tax was created in 1983, only a small percentage of the elderly were affected. But because the income thresholds were not indexed, today 56 percent of seniors are paying the tax, and the burden for them increases every time the inflation rate increases.
This form of stealth taxation should end along with the stealth taxation of other forms of retirement income.
Stop the forced withdrawal of funds from retirement savings accounts. Beginning at age 72, federal law requires mandatory withdrawals from IRAs and other tax-favored accounts. Once withdrawn, these funds can be subject to punitive taxation – at rates much higher than the rates faced by younger taxpayers. Saving by seniors is a source of funds for the capital market – creating new jobs and promoting economic growth. Given that we already have too little saving and too much debt, an anti-saving measure like this makes no economic sense.
Protect against catastrophic drug costs without discouraging the next breakthrough remedies for Alzheimer’s and cancer. The new IRA bill Congress just passed will eventually cap the annual out-of-pocket prescription drug costs for Medicare enrollees at $2,000 and impose price controls on some new drugs to boot. Both the Congressional Budget Office (CBO) and private sector economists predict we will get fewer new drugs as a result.
Fortunately, there is a better way. Let seniors pay out-of-pocket for small drug expenses which they can easily afford in return for insurance protection against expensive drug costs which very few can afford.
Create access to the same low drug prices others are paying. The current system gives Medicare Part D drug plans perverse incentives to overcharge beneficiaries at the pharmacy and undercharge enrollees when they pay premiums. In this way, we are subsidizing the healthy (with low premiums) at the expense of the sick (who pay high prices for drugs). In some cases, the patient’s copayment is higher than the cost of the same drug purchased by others from GoodRX or Mark Cuban’s Cost Plus Drugs (at 15% over the manufacturer’s cost).
Better arrangements already exist: the typical Medicare Advantage plan and many employer plans make insulin (and many other chronic medications) free for enrollees. Yet no Part D insurer is doing that.
Stop penalizing the beneficiaries when Social Security and Medicare bureaucrats make costly clerical errors. Social Security beneficiaries are losing $10.6 billion a year because of bad choices made because they do not understand Social Security’s complicated rules. The Social Security System has 2,728 rules and thousands upon thousands of additional codicils in its Program Operating Manual. In the case of married couples alone, the formula for each spouse’s benefit is composed of 10 complex mathematical functions, one of which is in four dimensions. Medicare rules are also a land mine full of costly penalties for the unwary.
Social Security and Medicare should be designed to help beneficiaries maximize benefits they have paid for and are entitled to – not trick people into making bad choices. And when Social Security gives beneficiaries bad advice, as it often does, the beneficiaries should not suffer as a result.
I predict that candidates who promise to solve these problems in the manner suggested will do well on election day.