Sunday, February 6, 2011

Social Security and the Budget

Andrew Dobelstein writing that the Social Security proposals of the National Commission on Fiscal Responsibility and Reform (Debt Commission) are both comprehensive and progressive. Dobelstein notes that the rhetoric that 'you either have to raise taxes or cut benefits' is obscuring the nuanced reform that he says at its heart would:
  • increase payable benefits for low income beneficiaries (+3.8% for the lowest income quintile)
  • reduce payable benefits for high income beneficiaries (-18.7% for the highest, both by 2050)
  • remove the cap on taxable wages, thus increasing taxes for higher income persons
Under the Debt Commission's proposal, Dobelstein says the program would be shored up in a progressive fashion (increase benefits to the poor, reduce them for higher income persons) that expands the safety net, while maintaining a basic retirement benefit for all Americans. [I should say that I have a reflexive negative reaction to raising the retirement age, in part because I grew up working on a tobacco farm in my summers and think I can write blog posts until I am 67 no problem, but manual labor is a different story. As I understand it, the Debt Commission policy could allow some sort of exemption along these lines.]

I had an email exchange this past week with someone who knows far more about Social Security than I do. I wrote to him that while Social Security was historically the 'third rail' of American politics, it was now the easy fix because of how big and hard the long term problem of Medicare and health care cost in general have become. He agreed that this is true, but told me that people like me saying that was one of his pet peeves. The reason, he said, was my sentiment allows/enables political delay to addressing the problems of Social Security. And options get worse the longer you wait to start. Further, there are a series of straightforward Social Security fixes that are available (here is a list of CBO options), while the long term fixes of Medicare and how to get started are much less clear, especially with the legal challenges for the ACA.

There is much to be said for a strategy of addressing Social Security, taking that off the table and then focusing our energies on addressing health care costs. It is true that we could pass a Social Security fix this year, and it will work as designed, whereas successfully addressing health care costs in Medicare and otherwise will take a focused 30 year effort, with many twists and turns. That is because Social Security faces a purely demographic financing problem while Medicare joins the same demographic problem with the rate of cost inflation in medical care.

In the end, I have decided I will be open to just about any compromise on Social Security that builds momentum in the Congress that would take it off the table and allow us to focus on health care costs.

I have written that we need to develop a long range plan now to address the debt before some sort of crisis forces us to do so in a context that provide us with fewer options. The main barrier to doing so is the politics of how hard it will be. The last 3 elections have provided both political parties with large electoral victories by essentially arguing that 'we are not as bad as they are.' Both parties may be able to win again in 2012 using this strategy, not by addressing the large problems facing our country, but by highlighting the foibles of the other party. It would take true leadership and courage to risk doing something consequential in the 112th Congress.

I think that a large deal on tax reform, and perhaps Social Security is more likely than a small deal, but neither is particularly likely. If such a deal came about, it would seem more likely to emerge from the Senate. Recall that 5 of the 6 members of the Senate voted for the Debt Commission recommendations (including Coburn and Durbin, quite an ideological spread), while 5 of the 6 members of the House voted against.

I wrote this a couple of weeks ago, and it is still my bottom line:

"If we ever adopt a serious, long term deficit reduction plan that moves us toward a sustainable federal budget, the last political step will include members of both parties passing a bill that is akin to their holding hands and jumping off a cliff together. The President is the only person who can take the first step toward the edge."

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