Grassley: Use Income Taxes Sparingly in Social Security, Medicare
"Over the next decade, the income tax surplus will total more than $1.8 trillion," Grassley said. "That's an obvious place to look for money for Social Security and Medicare. However, we all know that the surplus isn't free money. It's amassed by taxing the incomes of the American people, and that's not something we should ever do lightly."
Grassley's comments came after a hearing, "Income Taxes: the Solution to the Social Security and Medicare Crisis?", at which Federal Reserve System Board Chairman Alan Greenspan and other experts raised concerns over devoting large portions of the income tax surplus to Social Security and Medicare.
Grassley explained that Social Security and Medicare Part A (or hospital insurance) are paid for primarily through payroll taxes. Medicare Part B (or supplemental medical insurance) is paid for mostly through income taxes, not payroll taxes.
The long-term financing problem facing Social Security and Medicare is prompting policymakers to look at ways to fund those programs in the future, Grassley said. The income tax revenue surplus is a desirable funding source for some policymakers, including President Clinton. The President's proposals include substantial use of income tax monies in both Social Security and Medicare.
In contrast, Grassley and other legislators have sponsored a bill to save Social Security that largely avoids relying on income tax money. The Bipartisan Social Security Reform Act (S. 1383)is also sponsored by Sen. John Breaux (D-La.), ranking member of the Aging Committee, and Sens. Judd Gregg (R-N.H.) and Bob Kerrey (D-Neb.).
Grassley said devoting more income tax money to Social Security and Medicare raises a series of challenging questions:
How will we maintain discipline in the funding structure for Social Security and Medicare if we allow these programs to tap income tax revenues? If these benefit payments rely on income taxes, will that put a strain on funding for all other government programs, should we run a deficit? If we turn to income taxes to fund benefits, would this be a permanent change or a temporary change? Should the use of income tax monies be allowed in the absence of other reforms to Medicare and Social Security? Will the use of income tax monies make reform more or less difficult?
Grassley said that after hearing the testimony, he is convinced that relying on income tax monies in the absence of substantive changes to the financing of Social Security and Medicare would do little to address the long-term solvency of those two programs.
"I believe in the old saying, if it seems too good to be true, it probably is," Grassley said. "We have to be cautious about any plan to save Social Security and Medicare that seems too easy. A quick fix isn't a permanent solution. I'm glad we're airing this issue now, while the Senate is considering how to use the surplus, and before baby boomers start to retire. We still have time to find the best long-term funding sources for Social Security and Medicare."