Monday, October 30, 2006

Social Security 2.0: Coming in 2007?

So wonders James Pethokoukis in last week issue of U.S. News & World Report. After some background, he cuts to the "Let's Make a Deal" section of the article:

Striking a deal isn't an absolute impossibility. To prove that a bipartisan agreement is possible if the will is there, Maya MacGuineas, president of the Committee for a Responsible Federal Budget at the New American Foundation think tank, decided to run a little experiment last winter. MacGuineas, a former Social Security adviser to Sen. John McCain's 2000 presidential campaign, brought together Jeffrey Liebman, a former aide to President Clinton, and Andrew Samwick, a former aide to President Bush, to see if they could hash out a reform plan. Some 50 hours later, spread over several months, they had one. The proposal includes beginning to raise the retirement age to 68 starting in 2011, raising the maximum taxable earnings limit to $172,000 by 2017 vs. $94,000 currently, diverting 3 percent of payroll taxes into personal retirement accounts, and reducing spousal benefits for those married to high earners. The plan, already vetted by the Social Security Administration, would return the program to long-term fiscal solvency and create a personal account sweetener to boot. "It's doable," MacGuineas says. "We know what tough choices have to be made. And I think the country is more aware now that something has to happen."

But before anything like that happens in the real knife-fighting world of inside-the-beltway politics, "there is going to have to be an admission among Democrats that highlighting differences on the issue won't play well going into 2008," says Kim Wallace, political analyst at Lehman Brothers, "and a desire not to leave Social Security as an issue for the next president to solve."

Yet if Democrats believe that the next occupant in the White House will most likely be Hillary Clinton, Al Gore, or Barak Obama rather than John McCain, Rudy Giuliani, or Mitt Romney, they have every incentive to stall until 2009. Wallace also thinks that Democrats will be unwilling to work with the White House on the issue as long it continues to push for permanent extension of the 2001 and 2003 tax cuts, currently set to expire at the end of 2010. "Most Democrats think that is not a rational approach," Wallace says. At the same time, he predicts that the next Congress will be the last one able to avoid working on substantial Social Security reform because of the program's obvious and impending fiscal difficulties. Indeed, Social Security surpluses will begin shrinking in 2008 when the first baby boomers become eligible to start drawing checks, just in time for the Iowa caucuses.

Let's hope we get a do-something Congress after the elections, particularly if it's a "do-something-sensible" one at that.


Anonymous said...

The only "crisis" Social Security is facing is that Wall Street companies aren't getting to milk its trust fund for juicy "management" fees...

Anonymous said...

Indeed! Medicare is the *unfunded* mandate and boondoggle that's going to bankrupt the country... Why do they keep going on and on and on about SS?

I like to think it's because the program is an FDR legacy. But now that I think about it, you're probably more correct - they want their hands on our money - money which isn't there in the case of Medicare. So obviously there's no big hurry to reform the Godzilla of entitlement programs.

Anonymous said...

Read this fine report by the Comptroller General of the USA published a month ago. It sure seems that Medicare is a MUCH BIGGER problem than Social Security.

You could say that over-spending on prolonging life exacerbates the problems over at Social Security because they have to pay-out longer.

Only 13 pages - with nice charts.

Anonymous said...

I'm suprised you didn't correct the misleading "diverting 3 percent of payroll taxes into personal retirement accounts." That makes it sound like a pure carve out, rather than a split between an add on and carve out.

Anonymous said...

It is definitely possible to get a bipartisan deal to fix Social Security, if only people in both parties are willing to put politics aside and to do it. The Liebman-MacGuineas-Samwick plan is an example of a bipartisan proposal that would do the job, as is the Kolbe-Boyd plan. There are a variety of sustainable plans out there with different fiscal effects, but the common elements of these plans tend to be personal accounts funded at least in part with future payroll taxes, and changes to the benefit structure of the traditional system, to restrain cost growth and to increase progressivity. This describes proposals that include the President's to the fiscally sustainable Congressional proposals from Members in both parties.

Choosing the right policy, of course, should be a matter of bipartisan debate and negotiation. What shouldn't be in dispute, however, is the enormous size of the problem, and the fact that it is growing larger with delay.

A few facts, all of which can be verified by reading the Social Security Trustees' report:

-- The total Social Security shortfall is now projected as $13.4 Trillion. That's up from $10.5 Trillion in the 2003 estimates, and the biggest reason for the increase is simply the loss of time. Whether or not one thinks this is the right measure of Social Security's shortfall, it remains the case that any self-consistent view of the program shortfall (one that includes both the taxes paid and benefits owed by each cohort) produces a similar number, close to $13 Trillion, so long as it the time period covered includes both current and past generations.
-- Moreover, this figure doesn't capture the true costs of delay in several respects. It doesn't capture the fact that with each succeeding year, we have another cohort of retirees whose benefits are politically inviolate. The number also treats another year of Social Security surpluses as a program asset earning interest, even if that year's surplus wasn't saved. In other words, the figure doesn't truly capture the fact that a surplus year has receded into the past.
-- The current Social Security problem is already larger, over the next 75 years, than the one that the Greenspan Commission addressed. In fact, were it not for a change in methodology in 1988, the 75-year deficit would look nearly twice as large as the one facing the Greenspan Commission.

Yes, Medicare is a bigger problem, fiscally, than Social Security. But this in no way means we can afford not to deal with Social Security. Medicare is like an unaffordable house, Social Security like an unaffordable car. Just because you're thinking of buying an unaffordable house doesn't mean you can buy an unaffordable car.

In sum, people can argue the best policy response to Social Security's shortfalls, but all should commit to getting this problem resolved.

Anonymous said...

Social security certainly has a projected shortfall. Medicare has a current shortfall. Which one is in fact more pressing???

Social security has a surplus right now, which is why this kleptocracy remains focused on it like a laser.

Furthermore they are not focused on fixing it or returning the funds to their rightful owners (taxpayers), but are intent on diverting the surplus into the hands of investment banks.

I have to throw the BS flag on this entire line of thought, because they continue to ignore (and even feed) the elephant in the room - Medicaid.

Until addressing the social cancer that is Medicaid enters this discussion, I view it as little more than an attempt at public theft.