April 10, 2000
Constitutional Amendment Would Make it Harder to Address
Long-Term Financing Problems of Social Security and Medicare
The constitutional amendment to require the approval of two-thirds of the House and Senate for any bill increasing federal revenues would make it more difficult to address the long-term financing problems of Social Security and Medicare. The Social Security trustees project that the Social Security trust fund will become insolvent (i.e., be unable to finance fully the payment of promised benefits) in 2037. The Medicare actuaries project the Medicare Hospital Insurance trust fund will become insolvent in 2023. The resulting trust fund imbalances in both programs will be sufficiently large that it probably will not be feasible politically to address these imbalances solely through changes in the benefit structure of the programs; doing so would require Social Security and Medicare benefit reductions that go well beyond what the American public would be likely to accept. Despite this situation, the proposed constitutional amendment would require two-thirds majorities for any Social Security and Medicare rescue plans that include measures to raise tax revenues for these programs as part of broader reform packages. The likely result would be to make Social Security and Medicare reform still more difficult to achieve than it already is.
That Social Security reform may and probably will entail some revenue-raising measures is shown by a number of developments in recent years.
- The Advisory Council on Social Security issued recommendations in 1997 on measures to restore long-term Social Security solvency. The Council split three ways in making its recommendations, dividing largely over the question of private accounts. But the Council was unanimous in recommending that Social Security solvency legislation include some measures that would be considered tax increases; all three of the plans the Advisory Council's three factions put forward included measures to raise more payroll tax revenues.
The Advisory Council plan that would partially replace Social Security with private accounts included a 70-year payroll tax increase to help finance the transition to such accounts. The plan that proposed private accounts on top of Social Security also financed these accounts through a payroll tax increase. In addition, both of these plans, as well as the third Advisory Council plan, required new state and local employees to join Social Security, a provision that would increase payroll tax revenues. (State and local employees in certain states are not covered by Social Security; they are the only significant group of employees that remain outside the system. Expanding coverage to this group would benefit a number of workers who spend only part of their careers in state and local government and would improve the balances in the Social Security trust funds. Because the newly covered employees and their state and local government employers would be subject to the payroll tax, expanding coverage to these workers increases payroll tax revenues.)
- Social Security legislation that Senators Moynihan and Kerrey have introduced also would extend coverage to all new state and local employees. It, too, thus includes a measure that would be considered a tax increase under the constitutional amendment. So would the Social Security legislation that Reps. Stenholm and Kolbe have introduced (as a result of its provisions relating to the Consumer Price Index, which would affect tax as well as benefit indexing), and the legislation that Senators Gregg and Breaux have introduced (which includes the CPI provision and also raises the cap on the level of wages subject to the Social Security payroll tax.) Under the proposed constitutional amendment, the three plans the Advisory Council proposed, the Gregg-Breaux plan, the Stenholm-Kolbe plan, and the Moynihan-Kerrey plan all would require two-thirds majorities to pass.
Requiring a two-thirds vote for measures such as these to pass would make it harder to address Social Security's long-term financing problems without either imposing overly deep benefit reductions on low- and middle-income beneficiaries or shifting many trillions of dollars from the rest of the budget to Social Security for a number of decades and making deep cuts in other programs to pay for these transfers when budget surpluses run out.
Problems for Medicare
The proposed constitutional amendment poses even more serious problems for Medicare. Medicare's long-term financing problems are larger and more difficult to solve than Social Security's. Few experts believe it will be possible to restore long-term solvency to Medicare without a combination of substantial changes in the program and sizeable new revenues.
For example, the controversial Medicare plan that Senator John Breaux and Representative Bill Thomas put forward last year would significantly reduce projected Medicare spending. Yet it would close only a modest fraction of the long-term gap between projected Medicare expenditures and anticipated revenues. That even so controversial a proposal as the Breaux-Thomas plan would close no more than a modest fraction of the long-term Medicare financing gap makes clear that some revenues will be needed to help achieve Medicare solvency. For these reasons, a politically diverse panel of Medicare experts the National Academy of Social Insurance convened last year concluded unanimously that the provision of new revenues for Medicare must be part of the debate on long-term Medicare solutions.(1)
The constitutional amendment, however, would require a two-thirds vote for most measures that would raise more revenues for Medicare. That would make Medicare's ultimate collapse more likely.
Small increases in the Medicare payroll tax on the order of a fraction of one percent of employees' wages could, in combination with significant program reforms, be of major help. Although modest Medicare payroll tax increases are not politically feasible today, they may become feasible in the future as Medicare's financial situation worsens if a simple majority vote is needed to pass them. The constitutional amendment would probably assure that such proposals could never pass.
The proposed constitutional amendment could make it more difficult to pass various other Medicare reforms as well. Even a longstanding Republican Medicare reform proposal would appear to be ruled out by the proposed constitutional amendment. The budget reconciliation bill that Congress passed in November 1995 (and President Clinton subsequently vetoed) would have increased the premium for Part B of Medicare for beneficiaries at higher income levels. (Part B provides physicians' services.) Such a measure has much to recommend it. But it entails raising revenues.
Social Security offices, which handle eligibility for Social Security and Medicare, do not have information on beneficiaries' current incomes. The only practical and efficient way to raise Medicare premiums for high-income beneficiaries is to use the income tax system to collect a supplemental Medicare premium from these individuals. To attempt to raise premiums on these beneficiaries without using the tax system would require hiring a legion of new bureaucrats to staff Social Security offices and collect information on beneficiaries' current incomes. Not only would this be enormously costly and inefficient, but it would likely be seen by millions of beneficiaries as an unwelcome invasion of privacy.
When the Republican budget bill containing the measure to raise premiums for more affluent seniors reached the House floor in the fall of 1995, the House parliamentarian advised that the bill's increase in premiums for those at higher income levels could constitute a tax increase. House rules that had been adopted in January 1995 required a three-fifths vote on the House floor for measures to raise tax rates, and the parliamentarian's advice meant the budget bill would need a three-fifths majority, unless the three-fifths rule was waived. The House Rules Committee promptly waived the rule. The budget bill then passed by a simple majority vote, falling short of a three-fifths majority.
If a supermajority requirement is enshrined in the Constitution, however, no such Rules Committee waivers will be possible. Measures to means-test the Medicare premium to strengthen the Medicare program's finances could become much more difficult to pass.
The proposed constitutional amendment consequently would reduce the prospects for securing agreements to restore long-term solvency to Social Security and Medicare. As a result, the amendment should be considered a threat to the programs' long-term viability.
1. Members of the National Academy of Social Insurance Study Panel on Medicare Financing, The Financing Needs of a Restructured Medicare Program, September, 1999.