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Medicare the Real Crisis, Not Social Security

Presidential candidates are playing to the senior vote and ignoring the far more urgent matter: health care.
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Listening to John Edwards, Sen. Barack Obama (D., Ill.), and Fred Thompson, you would think Social Security recipients won't be able to cash their checks in a few years.

But it seems they're uninformed about

entitlement reform. Medicare remains the true disaster. The Social Security problem rests on the perpetuation of a myth: that the Social Security trust fund isn't real.

I understand why politicians in this race have chosen to talk about Social Security. They want to have a dialogue with voters, in particular seniors, showing they care about serious issues and plan to try to solve serious problems.

Both Edwards and Obama endorsed hiking the payroll cap tax, which feeds the Social Security fund. The cap adjusts every year, but the present limit is $97,500. On CNN's

Late Edition

, Edwards tried to differentiate himself from Obama by saying he wants a buffer zone for people earning up to $200,000.

Obama, when questioned directly about how this would raise taxes for 10 million people on NBC's

Meet the Press

, waffles about the cap:

Well, it -- you know, I have not specified exactly how we would structure the cap tax. Conceivably, you might have the equivalent of a doughnut hole, although this one would be a good one, as opposed to the bad doughnut hole that Bush set up for, for prescription drugs where you have a gap between people who are of middle income and very wealthy people.

This sounds similar to Edwards' proposal of excluding some middle-income earners from the tax.

Thompson follows a different route to fix Social Security. As a Republican, he can't say he would raise taxes. He instead would lower the benefits paid to seniors by re-indexing Social Security benefits. Benefits would be based on price formulas, rather than wages, which don't rise as quickly.

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Thompson hopes to make up for the benefit cut by introducing Personal Retirement Accounts. He bets on capturing the past gains of the stock market to help retirees. Of course, investment firms have to alert clients to the fact that past returns not might be indicative of future returns. Politicians are free to say what they want.

So why is there so much fear about the future of Social Security? The experts at the Congressional Budget Office predict the Social Security trust fund will run dry in 2046, and their growth numbers remain conservative. Sounds pretty solid to me. But I hear this statement all of the time: The trust fund isn't real.

Hogwash. The trust fund remains as real today as it was when it was created by the Greenspan Commission in 1983. The trust fund is backed faithfully by U.S. government bonds. Did something happen overnight to U.S. bonds that I didn't notice? The dollar might be going to zero, but the U.S. government still plans to honor its debt obligations.

Furthermore, no right-minded politician has any plan to come out and announce that the U.S. won't pay our debts. Why? It would be financial and political suicide. First, it would conceivably spawn a financial crisis because the world would freak out about the money they are owed. Second, future retirees also happen to be voters. Any politicians recommending the end of Social Security would be thrown out of office by lower- and middle-class voters.

The only reasonable assumption is that the trust fund exists as debt obligations. And how do we pay our debt obligations? They get paid through the General Fund of our federal budget, which includes all of the interest those bonds earn. The problem results from the stress on the federal budget.

The larger problem comes in the form of health care. Health care costs are growing at a dramatic rate and will continue to grow at rates exceeding inflation unless something is done. This means Medicare will be a problem first. As I've said before, the trust for Medicare will run out in 12 short years -- 2019. This is serious.

Obama thought the same thing in May when he appeared on

This Week

with George Stephanopolous:

I don't want to lay out my preferences beforehand to reform Social Security, but what I know is that Social Security is solvable. It is not as difficult a problem as we're going to have with Medicaid and Medicare.

Obama thinks along the same lines as Clinton, who had this to say about the economy Monday:

'We don't need a trillion-dollar tax increase that will hit families already facing higher energy, health care and college costs. What we need is to focus on the real crises of health care and Medicare, and on expanding opportunities for poor, working- and middle-class families who are struggling now.

The real focus should be on the rollout of health care plans by the candidates -- not Social Security -- to fix the out of control costs that could damage our future prosperity. The time to fix Medicare is now.