The Center for a Responsible Federal Budget

On Tuesday, I had the opportunity to attend the annual conference of the Committee for a Responsible Federal Budget and participate in a roundtable with its Board of Directors and others. The president of CRFB is Maya MacGuineas, the "M" from the LMS plan. Here are the points I made:

1) Articulating a Budget Target

Some of the discussion referred to the possibility of a budget summit. (The CRFB's co-chairman have called for this publicly.) I think that the critical element of budget policy is setting the target. I think the target has (at least) two parts.

First, the government budget should be in balance over the course of business cycle, where budget here refers to the General Fund, excluding surpluses or deficits in entitlement programs. As an alternative, I would accept a weaker standard that there be no trend in the ratio of total federal debt to GDP. (This debt figure includes any debt held by government trust funds.)

Second, all entitlement programs like Social Security and Medicare should be sustainably solvent using enumerated and dedicated revenue sources. Sustainably solvent means that the program's trust fund is projected to have a positive and non-decreasing balance at the end of the relevant projection period. Enumerated and dedicated revenue sources means that the practice of relying on the General Fund to finance upwards of 75 percent of Medicare Part B and D should end--no open-ended commitments. Enumerate a revenue source to pay for it.

Personally, I won't work actively for the election of any political candidate or the in the administration of any politician who espouses a budget policy at odds with these targets.

2) All Dollars Matter

I still give the current Administration great credit for being willing to engage on Social Security's solvency. But I remain disappointed in the way that engagement was undermined by policies toward other entitlement programs and the General Fund (leaving aside design and marketing issues in the personal accounts). The public was supposed to be concerned about Social Security reform because the program is projected to shift from surpluses to deficits as the Boomers retire, life expectancy continues to increase, and fertility rates remain around 2. I acknowledge that's why I'm concerned. That's why the President said he was concerned, or at least one of the reasons.

If concern over tax burdens on future generations is what motivates you, then it is completely inconsistent with that motivation to pass a Medicare prescription drug bill that generates a projected unfunded obligation that is bigger than the projected unfunded obligation in Social Security. It is also completely inconsistent with that motivation to run General Fund deficits that are not balanced by later surpluses, raising the debt burden on future generations. This sort of inconsistency will doom any chance at prudent reform of any of the programs.

3) What If This Becomes a Class Conflict?

I've been working on Social Security and its reform for over a decade, closer to two. I have always framed the issue as a matter of conflict between generations over resources. The inconsistencies in #2 are starting to frame the debate in terms of class. For example, those who want to preserve entitlement programs as they are currently structured think that debt finance of entitlement programs is not so bad. Debt is serviced primarily through the income tax, and of all taxes (other than inheritance taxes), the income tax is the most progressive. So why accept any increase in payroll taxes or mandatory broad-based contributions to personal accounts now? The normal answer would be so that we can reduce the tax burden on future generations. But they don't see it that way. High future income taxes fall on the highest-income members of future generations. According to this view, those people are largely the children of the highest-income members of the current generation who, again according to this view, are not paying enough income taxes today. Sure, they would rather have the current highest-income people pay more today, but the second-best alternative for them is the highest-income people some other time. When this becomes an issue of class divide, I think we'll have an even tougher time bridging it.



I'd like to take this opportunity to thank people who have given me feedback through the blog about these issues. Anyone who's been reading for a while can see how my views have been shaped through these productive and polite exchanges of ideas.