Initially, when Medicare first came into existence in 1965, during the Administration of President Lyndon Baines Johnson, it was part of Social Security. During the early part of his first Administration President Ronald Reagan fixed Social Security by raising the rates paid by both the employees and employers. Social Security did not have a problem funding the people it covered at the time but it was felt that this change would allow the system to operate well into the future. The new funding completely covered both Social Security and Medicare.
In 1988, the last year of the Second Reagan Administration, Medicare was separated from Social Security; and thereafter funded separately. Social Security continued to be funded at its current rate: 4.2% of incomes up to $110,100 paid by the workers with 6.2% contributed by the employer. The self-employed pay 10.4% of their incomes. No adjustment was made to lower the funding now that Medicare was a separately funded entity. Medicare was funded independently by a 2.9% payroll tax, both workers and employers each paying 1.45%. Taken together each employee pays, directly or indirectly, 13.3% of their incomes.
Question: When the Republican Congressmen talk about fixing Social Security are they talking about reducing its rates to bring it in line with the amount it pays out or are they talking about taking the excess funds such as the 2 ½ plus trillion dollars that the government has borrowed from social Security and put into the National Debt; or are they considering reducing the payments to the recipients of Social Security and keeping the excess still being paid into it?
In point of fact, Social Security has nothing to do with the National Debt except that part which is owed to it. One reasonable way to fix Medicare today would be to reduce Social Security by one or more percent and increase the payment to Medicare by that same amount. Any other argument at this time is based in ignorance of the actual situation. Are the members of Congress who are proposing these changes being devious and dishonest or are they just ignorant of the actual situation? If the answer is ignorance then they and their staffs, which cost the taxpayer well over a million dollars a year, are ill equipped to serve as Representatives of the American people, if they are being devious and dishonest then they do not belong in Congress but rather should be incarcerated.
The National Debt is another interesting subject. Is it real? If not what is it? The Federal Government admits to holding 40% of the National debt. By my reckoning the figure is more like 70%. The Chairman of the Federal Reserve recently announced that the Fed is buying 400 billion dollars worth of real estate paper a month and 450 billion dollars worth of bonds each similar period..
Can an entity owe itself money? The answer legally is No. It can be argued that agencies within the government and the Federal Reserve hold most of the debt and that it will someday have to be paid back. But isn’t all that that sophistry?
Obviously there is a National Debt, but it is far less than what it is officially stated as being. If we deduct the percentage of the National Debt that the Federal Government holds through it agencies and otherwise the actual Debt is less than 5 trillion dollars. That is far more manageable than $16 trillion. Of course that is by my calculation and includes all the Monetary Policy applied during the Obama Administration. If we just take the 40% the Federal Government acknowledges it owns then the figure is slightly under $10 billion.
In either case what we have to keep in mind is that the Federal Government controls the flow of currency in the economy and that there is nothing behind the dollar except the National Debt. Money as used by the Federal Government in Macroeconomics is a tool that is supposed to engender growth and health within the economy.
Up to this point the Federal Reserve has been utilizing Monetary Policy in both regular and imaginative ways to try to bring about recovery from the 2008 Real Estate Debacle. It has been successful in helping to turn the economy around and bring about partial recovery. In order to bring about total economic recovery all that has to be done is to apply Fiscal Policy by both Houses of Congress and the President. This would increase the so-called National Debt but it would generate a large volume of new productivity and new wealth, and, in all probability, lower the Debt in a short period of time.