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Hernando Today

Next President Has Huge Money Problems To Face

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By ADON TAFT, Life to the Fullest

Hernando Today

Published: September 22, 2008

The current crises in the housing and financial industries and their effect on the nation's economy is of particular concern to mature Americans who, according to AARP The Magazine, own three fourths of all financial assets in the United States and account for almost half — $2.1 trillion a year — of consumer spending.
So while those in the 55-plus age bracket make up 39 percent of all 135 million registered voters but 46 percent of the 90 million of those likely to go to the polls (based on Census Bureau figures from the past two elections), older Americans are especially interested in the economic — and particularly the health care portion — policies proposed by the presidential candidates.
Both Sen. Barrack Obama and Sen. John McCain are promising reforms in the regulation of banks and the stock market, but neither has provided any specifics so far on how that would be done. Each, however, has outlined some tax reforms and health care policies that may have dramatic consequences for all Americans but particularly senior citizens.
An analysis Sept. 12 by the nonpartisan Tax Policy Center found that neither presidential candidate seriously has addressed fundamental reform of the federal tax system. But both propose some major changes.
The center concludes that McCain would keep the Bush tax cuts, increase deductions for those supporting dependents, reduce the corporate income tax rate and speed up deductions for investments in some capital equipment.
For his part, Obama would extend some of the Bush tax cuts for those with annual incomes under $250,000 but cancel cuts for those in the top income brackets, increase tax rates on capital gains and raise the top rate on dividends. He also would create new tax breaks for workers, retirees, homeowners, small savers, students and new farmers.
Obviously, both older Americans who derive income from their investments and those whose only income comes from a Social Security benefit, will be affected either adversely or beneficially by those tax policies.
Also of interest to senior citizens, both candidates would cut the "death" tax but, according to the Tax Policy Center, McCain would reduce it more than Obama. Both pledge to close various tax loopholes.
Obama says his policies would mean tax cuts for 90 percent of Americans. The Tax Policy Center says McCain's policies would mean cuts for 60 percent of households but less than half of those at the lower end of the income scale.
Barron's magazine, quoting Wachovia's chief economist, John Silvia, concludes that Obama's plan to raise taxes on capital gains and corporations as well as individuals in the top 1 percent income bracket would hurt the economy because it would reduce investment capital and the expansion of business and the resulting creation of jobs.
Those tax hikes and their result would parallel what happened during the Great Depression when Herbert Hoover took similar action, the magazine quotes Michael Aronstein, chief investment strategist at Oscar Gruss & Sons, as saying.
McCain's tax cuts would reduce government revenues by roughly $4.2 trillion while Obama's cuts would reduce revenue by about $2.9 trillion over the next 10 years, the center estimates. So either policy would lead to significantly increased national debt. And all of this is apart from the issues surrounding the funding of Medicare and Social Security.
No matter which candidate's economic policies prevail, the picture darkens when Social Security, Medicare and related health care issues are added. All are matters that, while they affect us all, are of particular concern to seniors.
There are 40 million men, women and children receiving Social Security benefits (34 million of them are 62 years of age or older) plus nearly 8 million receiving disability benefits which are paid with Social Security funds. So nearly one of four persons receiving benefits from Social Security is younger than 62 but the ranks of those 65 or older is growing by nearly 500,000 a year.
Obama's principal remedy for the financial crisis the trustees say faces Social Security — some experts say there now is a $69 trillion current account deficit — is to lift the lid on the amount of earnings a worker makes on which Social Security taxes are paid. Currently, only the first $102,000 of annual salary is taxed. Anything above that is untaxed. He proposes that 100 percent of salary be taxed for Social Security and Medicare.
As for Sen. McCain, his principal reform is to make personal savings accounts for retirement available as up to 20 percent of the current Social Security program. He also is willing to consider applying the Social Security tax to 100 percent of salaries.
Few economists think either approach is sufficient to keep Social Security solvent in its current form.
Medicare, Medicaid and health care for others — including mature adults not yet old enough for Medicare nor impoverished enough to qualify for Medicaid — are related and make up a bigger financial problem even than Social Security. Some 40 million seniors and an additional 8 million with disabilities have Medicare. Nearly 53 million men, women and children receive Medicaid. Some 13 million are elderly or disabled (including half of all those confined to nursing homes and nearly half of all those inflicted with AIDs) and the remainder are low-income families.
The federal government now spends $435 billion a year on Medicare Parts A, B and D. But the Medicare tax taken out of payrolls and premiums paid by seniors cover less than half of that. The federal portion of the Medicaid cost is $196 billion annually. The remaining 43 percent of the tab is picked up by state governments.
Neither candidate has offered much of a remedy for Medicare's problems. Both have said they would cut the cost of medicine by having the government negotiate with pharmaceutical companies to get discounted prices for volume. And that's about it.
Health care for most younger folks — especially the 42 to 47 million estimated to be without health insurance — has been talked about more. Both the Republican and Democrat candidates have offered fairly specific plans.
Sen. McCain's approach would be to give individuals a $2,500 tax credit and families a $5,000 credit to help buy health insurance either through their employers' or any insurance company licensed in any state. He holds that competition among insurance companies would hold down costs.
Critics writing in the latest edition of the journal, Health Affairs, warn that such a program still would leave out most of the currently uninsured.
Sen. Obama's approach is to have some sort of a government operated system to negotiate prices and benefits with as many private insurers as want to participate. But they would compete with a government-run insurer and could not charge a higher premium for those with pre-existing conditions such as cancer, heart disease or diabetes. The government would subsidize the cost of premiums for those who can't afford them and employers would have to contribute to the plan.
Health Affairs worried that such a program would be fiscally unsustainable.
In any event, whoever becomes the next president has some huge money problems to face. The one you think has the best chance of solving them is the one to vote for.

Adon Taft, who lives in Brooksville, was a reporter for The Miami Herald for 43 years.

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