Jeb Bush, who made news this weekend by lamenting the unserious nature of the Donald Trump-dominated Republican primary, on Tuesday will return to a subject that’s more comfortable for him: policy.
The former Florida governor is unveiling a plan to shore up Social Security and Medicare through a variety of changes that would reduce government benefits for seniors at higher income levels and provide retirees with more choices to save and to finance their health spending. The proposal, he promises, would not do anything to change the benefits of current retirees.
In a notable departure from his brother President George W. Bush, the package of Social Security reforms does not include allowing younger workers the option of diverting a portion of their payroll taxes into personal investment accounts. Instead, he’s adopted a number of ideas previously proposed by Rep. Paul Ryan, R-Wis., and endorsed by the Simpson-Bowles deficit reduction commission.
On Medicare, Bush embraces Ryan’s premium support model, under which seniors would have the option of leaving traditional Medicare and choosing from competing subsidized private plans. The value of the premium support will be based on an average of all the plans.
The plan would also slash subsidies for seniors earning more money. As an example, a senior who makes $160,000 receives 50 percent subsidy under current law, but that would be cut to 35 percent.
In addition, Bush’s plan would allow seniors to pay into tax-free health savings accounts to help with out of pocket medical expenses, an option currently not allowed for anybody enrolled in Medicare.
Bush also promises to take action to reduce waste, fraud, and abuse in the program and he would use the Medicare cuts in Obamacare to bolster the program’s finances rather than to subsidize Obamacare. Though it would be unclear how this would affect the finances of his own plan to repeal and replace Obamacare.
On Social Security, Bush proposes a variety of ideas, split between those that would improve the program’s finances, those that would provide more retirement saving options, and those that would create incentives for individuals to remain in the workforce longer.
He promises to reducing regulatory burdens, making it easier for businesses to offer retirement plans. He’d let workers in small businesses that do not have 401(k) programs to create “starter plans” (this would provide another retirement investment vehicle to workers beyond IRAs). Small businesses would also be able to pool their resources together to create 401(k) plans.
The plan would also “encourage employers to automatically enroll their employees in a retirement savings plan.”
On the financing side, the proposal would increase the retirement age for full benefits, currently set to grow to 66, by one month every year starting in 2022.
The Bush plan promises a minimum retirement benefit for low-income workers of $15,000 per year. On the flip side, the plan would alter the formula for calculating benefits so that wealthy seniors benefits grow at a slower rate. It would also move to an alternate form of measuring inflation to calculate benefits, known as chained CPI.
Some of the fresher ideas from Bush involve various policies aimed at encouraging Americans to remain in the workforce for longer. This was something Bush previewed when he released his tax plan last month, which would scrap payroll taxes for seniors who remain in the labor force after 67 (I wrote about it in more detail here).
Bush’s thinking is that the current retirement system creates a disincentive to work once individuals reach the Social Security retirement age. Social Security benefits are calculated using a formula that’s based on a worker’s highest 35 years of earnings. Once individuals have already passed the retirement age, a few extra years in the workforce won’t significantly change their lifetime Social Security benefits. But if they continue to work, they’ll still have to pay payroll taxes.
To change these incentives, in addition to the payroll tax change, Bush’s Social Security plan would send smaller checks to individuals who choose to retire early, and larger checks to those who defer their retirement.
The idea is that when individuals remain in the workforce longer, they are not only helping economic growth, but they’re ensuring that they’ll have more secure retirements because they’ll have more years to build up savings and fewer years to eat into savings.
