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Senator Lee’s Budget Would Sharply Cut Social Security, Medicare, Other Programs While Making Tax System Less Progressive

May 16, 2012 at 10:42 AM

Sen. Mike Lee (R-UT) plans to introduce a budget resolution (S. Con. Res. 44) this week that would sharply cut Social Security and Medicare and most other federal programs.  Based on a plan from the Heritage Foundation, the Lee budget would slash programs that benefit low- and middle-income Americans while providing tax cuts for the wealthy.  Here are some of its remarkable features:

  • Turning Social Security into a welfare program. Social Security benefits would be income-tested.  Higher-income retirees would receive a reduced benefit or none at all.  For younger workers, retirement benefits would no longer be based on past earnings; everyone would get the same amount.
  • Replacing Medicare’s guaranteed coverage with a voucher. The Lee budget would replace Medicare’s guarantee of health coverage with a flat “premium support” payment, or voucher, with which beneficiaries would buy either private health insurance or a form of traditional Medicare.  This change, which would begin in 2017, would shift substantial costs to Medicare beneficiaries.  As with Social Security, higher-income beneficiaries would get a smaller voucher.
  • Raising the eligibility age for Medicare and Social Security. Senator Lee’s budget would raise the Medicare eligibility age from 65 to 68 over the next ten years.  It would also repeal health reform.  As a result, many 65-, 66-, and 67-year olds would have neither Medicare nor access to health reform’s coming health insurance exchanges in which they could buy affordable coverage.  Social Security’s early retirement age would rise from 62 to 65, and the full retirement age would rise to 68.
  • Reducing health coverage for those with modest incomes. Low-income, nondisabled individuals and families would no longer be eligible for Medicaid or health exchange subsidies.  Instead, they would receive a voucher to help buy insurance, but the voucher amount would often be inadequate and many families would find coverage unaffordable.
  • Cutting nondefense discretionary spending deeply. Under the Lee budget, nondefense discretionary spending — which covers a wide variety of public services such as elementary and secondary education, law enforcement, veterans’ health care, and environmental protection — would shrink to about 1.9 percent of gross domestic product (GDP) by 2022.  In contrast, this category of spending has averaged 3.9 percent of GDP over the past 50 years and has never gone below 3.2 percent of GDP during this period.
  • Making the tax system less progressive. A flat tax on consumption would replace the personal and corporate income taxes, estate tax, payroll tax, and most other federal taxes.  Most tax exemptions, deductions, credits, and exclusions that benefit low- and middle-income people would end.  Meanwhile, income from interest, dividends, and capital gains — which mostly goes to upper-income people — would be tax free.

All told, the Lee budget would fundamentally re-write federal spending and tax policy, taking from the poor and middle class, giving to the rich, and moving the country — at a time of widespread hardship at the bottom and stagnant living standards — in exactly the wrong direction.


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