-Caveat Lector- ------- Forwarded Message Follows ------- Date sent: Mon, 26 Jul 1999 09:42:17 -0500 To: [EMAIL PROTECTED] From: "John C. Goodman" <[EMAIL PROTECTED]> Subject: NCPA Policy Digest 7-26-99 National Center For Policy Analysis DAILY POLICY DIGEST Monday, July 26, 1999 PointCast can automatically load NCPA's Policy Digest summaries on your desktop for easy reading. For information go to http://www.ncpa.org/pointcast.html IN TODAY'S DIGEST o MEDICARE HAS AN $8.9 TRILLION UNFUNDED LIABILITY, say experts; thus an expensive new entitlement to drug coverage is not the best option....NCPA o SOCIAL SECURITY TRUSTEES' FORECAST A 17-TO-22-PERCENT TAX RATE will be needed by 2045 to pay benefits -- not counting health care expenses for the elderly....NCPA o ONLY 3 OF 15 MAJOR TAX ACTS SINCE 1980 HAVE CUT TAXES, and the tax burden kept rising after the 1997 tax cut...NCPA o THE U.S. SHOULD RETHINK AND REFORMULATE ITS PENSION SYSTEM by opening up investment possibilities....NCPA/INVESTOR'S BUSINESS DAILY o IMMIGRATION PROSECUTIONS ARE UP thanks to increased Justice Department emphasis, enhanced technology....WALL STREET JOURNAL o WOMEN'S COLLEGES CONTINUE ENROLLMENT GAINS, continuing an eight-year trend....WASHINGTON TIMES IN TODAY'S NEWS SOLUTIONS FOR ELDERLY PRESCRIPTION DRUGS President Clinton's proposed new prescription drug entitlement for people on Medicare has significant problems, say experts. For instance, it would expand Medicare at a time when Medicare's unfunded liability ($8.9 trillion over the next 75 years) is twice the size of Social Security's. Also, it would duplicate coverage that 65 percent of seniors already have through private insurance and Medicaid. And while covering some drug costs, it would leave the elderly exposed for catastrophic expenses. o About 360,000 Medicare beneficiaries spend more than $5,000 out-of-pocket every year on Medicare-covered services. o In order to limit their financial exposure, about 75 percent of seniors acquire, either through a former employer or private purchase, supplemental (medigap) insurance, which pays many or all of the expenses Medicare does not. (See figure http://www.ncpa.org/ba/gif/ba300fig.gif ) o However, federal law requires medigap insurers, like Medicare, to cover small-dollar items such as the Part A and Part B deductibles; but they need not cover the largest bills, and drug coverage is an option. Were insurers given more freedom, say analysts, they could offer more generous drug coverage, with no increase in premiums. A Milliman & Robertson analysis found that with the average amount Medicare currently spends on a each senior, a private plan could in principle establish a $1,585 across-the-board deductible and cover hospital, physician and drug costs above that deductible. Many seniors are already spending $1,500 to $2,000 a year for medigap coverage, but a better option for seniors would be to take that money and put it in the bank. For instance, Roth IRAs could potentially serve as "backended" Medical Savings Accounts for the elderly. Source: John C. Goodman (NCPA President) and Merrill Matthews Jr. (vice president of domestic policy), "Simple Solutions for Elderly Prescription Drugs," Brief Analysis No. 300, July 26, 1999, National Center for Policy Analysis, 12655 N. Central Expy., Suite 720, Dallas, Texas 75243, (972) 386-6272. For text http://www.ncpa.org/ba/ba300.html For more on Medicare http://www.ncpa.org/pi/health/hedex7.html PRINCIPLES OF SOCIAL SECURITY REFORM As we consider reform of Social Security , analysts say we should keep in mind that the system's trust funds are merely an accounting mechanism and do not provide real assets to pay any retirees' benefits. Under our pay-as-you go system, taxes paid by today's workers are immediately spent on benefits. According to the Social Security trustees' latest projections, as baby boomers retire, the tax rate needed to fund benefits will keep growing. o By 2045, when today's 20-year-olds reach retirement age - which at that time will be 67 - the government will need 17.4 percent of workers' wages to pay projected benefits. o Add in the amount needed to fund Medicare and other health care programs for the elderly and we will need a total tax rate of more than 31 percent. (See Figure I http://www.ncpa.org/ba/gif/ba302fig1.gif ) o Under the trustees' pessimistic assumptions, by 2045 the government will need 21.7 percent of workers' wages to pay projected Social Security benefits and more than twice that figure for elderly health care. o The total tax rate needed will be more than 48 percent of workers' incomes. (See Figure II http://www.ncpa.org/ba/gif/ba302fig2.gif ) A solution to Social Security's problems requires investment in income-earning assets, say analysts. In an analysis for the NCPA, Texas A&M University economist Andrew J. Rettenmaier found that with an annual contribution of 4.2 percent of wages, a personal retirement account invested in a balanced portfolio could replace Social Security benefits. Despite the difficulties of reform, the government can guarantee benefits for individual retirees. Two reform proposals -- by Sen. Phil Gramm (R-Texas) and by Reps. Bill Archer (R-Texas) and Clay Shaw (R-Fla.) -- explicitly guarantee that all retirees will receive a pension at least as great as the one promised under the current system. Source: John C. Goodman (NCPA President) and Joe Barnett (Policy Analyst), "Five Principles of Social Security Reform," Brief Analysis No. 302, July 26, 1999, National Center for Policy Analysis, 12655 N. Central Expy., Suite 720, Dallas, Texas 75243, (972) 386-6272. For text http://www.ncpa.org/ba/ba302.html For more on Principles of Reform http://www.ncpa.org/pi/congress/cong5d.html TAX CUTS ARE OFTEN REVERSED Last week, Republican moderates nearly derailed a major tax cut, concerned that it was too big and would reduce the budget surplus too much. But new entitlements, such as Bill Clinton's proposed prescription drug benefit, are a far greater threat to budgetary restraint than a tax cut. History shows that while entitlements are indeed very, very difficult to reduce once in place, Congress has proven more than willing to undo tax cuts. o According to a recent Treasury Department study, there have been 15 major tax bills since 1980. o Only three were tax cuts, while two had no net impact on revenues. o The remaining 10 bills were all tax increases that offset much, if not all, of the tax cuts. This suggests that even if the House tax bill is too big in some sense, it can simply be undone later; for example, in 1982 Congress moved swiftly to take back more than one-third of the 1981 tax cut in the Tax Equity and Fiscal Responsibility Act. Another point skittish moderates should remember is that failure to cut taxes from time to time means that taxes will automatically rise. As long as we have progressive tax rates and a tax system that is not fully indexed, inflation and real growth will push people into higher tax brackets and increase their tax burden. Indeed, this effect is so strong that the 1997 tax cut didn't even keep taxes from rising. Estimates of federal revenues by the Congressional Budget Office were significantly higher after the tax cut was enacted in August 1997 than before (see figure http://www.ncpa.org/pd/gif/pd72699.gif ). If we can't cut taxes when we have a large budget surplus, when can they ever be cut? Those concerned about fiscal responsibility should worry more about new entitlement programs and less about tax cuts. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 26, 1999. For text http://www.ncpa.org/oped/bartlett99.html For Treasury study http://www.ustreas.gov/ota/ota81.pdf For more on Current Tax Legislation http://www.ncpa.org/pi/congress/cong2.html REINVENTING PENSIONS With the rise of two-earner families and an increasingly mobile labor force, the country needs to rethink and reformulate its pension system, experts argue. Here are some of their suggestions: o Enable workers to shelter from taxes 10 to 15 percent of their annual income. o Do away with vesting, which requires an employee to wait some years before being guaranteed a pension, replacing it with a system in which employers contribute, say, two percentage points of an employee's allowed contribution to his pension the first year, four percentage points the second year, six the third year, and so on. o Establish a safe-harbor investment option by giving employers immunity from future lawsuits if they establish a choice of investment options and actively encourage plans that are diversified and designed to grow with the economy. o Eliminate laws which prohibit the creation of some retirement accounts if not enough lower- and middle-income employees participate. Other suggestions include: o Encouraging portability by allowing any employee leaving a company to cash out his pension benefits -- including defined-benefit plans. o Minimizing or eliminating restrictions on all pension plan rollovers. o Splitting pension contributions equally between spouses at the time of deposit -- or treat them as community property in the case of divorce. o And to protect accounts against employer or union manipulation, making plans "visible" and subject to third- party oversight. Source: Merrill Matthews, Jr. (National Center for Policy Analysis), "A Blueprint for Pension Revolution," Investor's Business Daily, July 26, 1999. For more on Nonwage Compensation http://www.ncpa.org/pd/economy/econ7.html PROSECUTIONS JUMP AT INS The Immigration and Naturalization Service doubled the number of prosecutions it launched between 1992 and 1998, a major factor in the sharpest annual rise in federal prosecutions since 1971. The analysis, based on Justice Department data, comes from the Transactional Records Access Clearinghouse, which is affiliated with Syracuse University. o The INS now ranks second in convictions among federal law enforcement agencies, following the FBI. o Annual INS prosecutions rose from 7,335 in 1992 to 14,616 in 1998. o The length of prison sentences jumped significantly from an average of two months in 1992 to 12 months last year. o Overall, there were 82,071 federal prosecutions in 1998. An INS spokesman attributes the increased numbers to more sources, enhanced technology, improved efficiencies and increased emphasis on immigrations-related cases at the Justice Department. The future structure of the agency is currently being debated on Capitol Hill. Lawmakers critical of the agency want it completely revamped, while the Clinton administration wants to reorganize it to more clearly delineate enforcement and service functions. Source: Marjorie Valbrun, "Beefed-Up Enforcement by INS Leads to Doubling to Convictions, Study Says," Wall Street Journal, July 26, 1999. For more on Immigration Policies http://www.ncpa.org/pd/immigrat/policies.html WOMEN'S COLLEGES EXPERIENCING ENROLLMENT GAINS Female high school graduates are increasingly opting to enter all-women's colleges, researchers report. That trend began about eight years ago. o Of the nation's 79 women's colleges, 96 percent are four- year institutions. o Just over half of them are located in the Northeast. o One-third of them have historical ties to the Catholic church, 18 are affiliated with other religions and 49 percent are independent. o Nearly half of the graduates of women's colleges have gone on to earn advanced degrees. Wesleyan College in Georgia granted the first degrees to women in the U.S. in 1836, and Spelman College, also in Georgia and founded in 1881, became the first college for black women. Source: Andrea Billups, "Engendering Renewed Support," Washington Times, July 26, 1999. 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