Social Security
Jagadeesh Gokhale and Mark Warshawsky speculate on the reasons why this year's Social Security Trustees Report has been delayed from its usual spring release:
Given the lead times necessary to prepare the trustees' report, it is highly likely that a final draft report was readied by early March to meet the April 1 legal deadline. But the trustees' decision to table that report was clearly unopposed because Social Security currently has no confirmed public trustees. All of its current trustees are ex officio members of the Obama administration, leaving no one to register concern that delay would prevent the public from knowing how rapidly Social Security's finances are deteriorating.
The excuse for the delay is to take account of the effects of the new health care laws, passed at the end of March, on Social Security's finances--with the expectation that ObamaCare will restore a semblance of financial viability to the program. The new health care laws create the possibility of offsetting the recession-induced decline in payroll tax revenues if many employers substitute higher taxable wages in place of health insurance coverage for their employees.
Via Brad DeLong, here's a post at Firedog Lake discussing the book, The Pact: Bill Clinton, Newt Gingrich, and the Rivalry that Defined a Generation, by Steven Gillon. The title of the post is both provocative and, setting aside my personal disagreement with the fourth word*, true: "How Monica Lewinsky Saved Social Security ..." The post focuses on the important role of Erskine Bowles in bringing President Clinton and Speaker of the House Gingrich close to an agreement on Social Security reform in 1998. When the Lewinsky scandal broke:
Politically, it forced Clinton to seek refuge in the liberal wing of his party, the same group he had agreed to abandon a few months earlier. “All opportunities for accomplishment were killed once the story came out,” reflected a senior White House official. “If we cut a deal with the Republicans on Social Security there was every possibility that the Democrats, who were the only people defending him in Congress against these charges, could easily get angry and abandon him.” With conservatives in an uproar, Gingrich lost his political wiggle room and was forced to appease his right-wing base. If Gingrich did not “feed the conservative beast,” recalled a colleague, he would have been removed from his job as Speaker.
I was very engaged in Social Security reform during this period, largely based on a proposal that is outlined here and that has gone through several iterations since. It was pretty clear that a deal was in the works and that the process was moving along. It was even more clear that the Lewinsky scandal ended it all. I had the dubious honor of testifying before the Senate Finance Committee on September 9, 1998, the day the Starr report was delivered to Capitol Hill. I also testified before the Senate Budget Committee on January 19, 1999, during the heart of the impeachment trial. To say that I couldn't get much traction with some very distracted Senators would be putting it kindly.
Dean explaining why the Wall Street Journal got it wrong, wrong, wrong when it referred to Social Security as a "budget buster."
"...Social Security is a money loser in the same way as IPOD is for Apple."
My recollection is that the automatic cost-of-living adjustment for Social Security was put in place so that members of Congress would not be tempted to adopt legislation that provided a larger-than-inflation increase every year. That temptation proved to too much for most members so the "look ma no hands" approach was adopted.
Does anyone think that this won't be the most bipartisan vote of the year in the House and Senate?
I'm guessing 430 to 5 in the House and 96 to 3 in the Senate.
Wonder what the over/under is going to be?
Amy Goldstein and Neil Irwin have the unenviable task of describing this as anything other than the political pandering that it is:
President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not see an increase in their benefit checks for the first time in three decades, pressing Congress for a one-time payment of $250 to help seniors and disabled Americans weather the recession.
So why is it that retirees are having trouble weathering the recession -- because they were fired from jobs from which they had already retired or because they had trouble paying the prices that haven't gone up relative to their Social Security benefits?
I am not the only one having entitlement reform deja vu. In response to my earlier post questioning the Republican strategy on health care reform, Brad DeLong drew a parallel with their unwillingness to do more in 2005 on Social Security. Glenn Hubbard gives a similar characterization in his New York Times op-ed yesterday:
Many Democrats saw personal accounts as the thin end of a wedge to dismantle traditional Social Security. Mr. Bush should have just jettisoned the term “personal accounts” and offered add-on expanded saving incentives — like letting individuals contribute more pretax dollars to I.R.A.’s and other pre-existing savings vehicles.
He also could have focused on low-income workers, as Social Security’s central role is to be a safety net for seniors. He could have done this by supporting a higher benefit for low-income workers than their record of contributions might offer, or by matching their contributions to private savings incentives with refundable tax credits. To pay for these changes and restore Social Security’s long-run financial stability, Congress could have slowed the growth rate of benefits for middle- and upper-income workers. Such a compromise would have achieved the goals of increasing private saving for retirement and shoring up Social Security’s ability to meet the retirement needs of millions of Americans. Yet Mr. Bush’s emphasis on both personal accounts and the future viability of Social Security allowed opponents to exploit inconsistencies in his reform agenda.
The biggest inconsistency is that he wanted to "strengthen" the system but was unwilling to commit public funds to do so. That's not a reasonable starting point. I think Hubbard is correct and clear in the parallel he draws to the way President Obama is pursuing his health reform strategy. The whole op-ed is worth a read, but this passage gets to the main point very well:
The big news last week was that the annual Trustees Reports for Social Security and Medicare were released, and the financial condition of the programs worsened compared to the prior year's report. When I read the Trustees Report for Social Security, I go straight for Table IV.B7, which shows that the unfunded obligations for the program over the infinite horizon are projected to be $15.1 trillion, which is equivalent to 3.4% of taxable payroll or 1.2% of GDP in perpetuity. (Those numbers are up from 3.2% and 1.1% in last year's report.) For an excellent set of comments on the reports, see the handouts from this panel convened by the National Academy of Social Insurance.
I have been very careful to stay away from making a link between the current explosion in the deficit and the reform of entitlement programs like Social Security and Medicare. It's not that I don't think that a link exists -- it's that I don't think that the case for entitlement reform depends on what part of the business cycle we are in. The case makes sense to me based on the long-term cost projections for those programs.
In today's Washington Post, Robert Kuttner laments that so-called* deficit hawks in Congress are trying to make the link. He opens with:
With the enactment of a large economic stimulus package, fiscal conservatives are using the temporary deficit increase to attack a perennial target -- Social Security and Medicare.
It may be that the recent increase to the deficit is temporary. But even a temporary increase in the deficit is a permanent increase in the debt unless there is enacted some way to specifically repay that debt in the near future.
Stan and I are in agreement on this one. Commissions rarely solve problems in Washington. They're usually created to buy votes to do the very thing that the commission was set up to stop.
Most commissons do important, but obscure, work that Congress doesn't want to take the blame for. Just listing and briefly describing currently active U.S. commissions takes 67 pages in this Congressional Research Service report. Before you look, can you name even one commission or describe what any commissions do?
That having been said, I look back fondly on the Kerrey-Danforth Commission mainly because it was one of the few commissions that actually attempted to "tell it like it is." A good friend, who I helped get his job with Senator Danforth, became the Commission's Chief of Staff. They did a very thorough, timely, and expert job of reviewing the unsustainable path of entitlement spending, and they clearly presented that in their report, which I am proud to say, I still have on my bookshelf!
When entitlement reform comes up in the general election campaign, we are sure to hear proposals for a high-level Commission to deal with them. This would take the discussions, at least in the early stages, out of the glare of the public spotlight. Some commissions are perceived to have worked, like the Greenspan Commission in 1983. Others, like the Kerrey-Danforth Commission in 1994, are regarded as having failed.
Here's an excerpt from a New York Times article from the time that described the reaction to the Kerrey-Danforth Commission, "Yawns greet a warning about the burning fuse on entitlements.":
