August 2012

Blahous: The Longer We Wait, the More Difficult It Is to Fix Social Security

Social Security trustee Charles Blahous has a interesting new commentary on the long-run sustainability of the Social Security program. The combined Social Security (OASDI) trust fund is due to be exhausted by 2033, but that measure, Blahous claims, gives the mistaken impression that we still have time to wait to make changes. He points out that the last major compromise on Social Security came in 1983, when the projected budget gap was much smaller than it is today (2.67 percent of payroll compared to 1.82 percent). And the shortfall has gotten larger in recent years, going from 1.91 percent to 2.22 percent to 2.67 percent over the last three reports.

Given these facts, it will become increasingly difficult to fix Social Security and waiting will exacerbate the problem, leading to more severe changes to the program and possibly giving policymakers less time to phase these changes in. Blahous gives three political reasons for this:

1.  The baby boomers are starting to retire. Lawmakers have historically been very reluctant to cut benefits for beneficiaries once they start receiving them. This means that any sacrifices will likely be concentrated on younger generations who already face net income losses through Social Security as it is. With every further year of delay lawmakers must therefore consider sharper benefit growth reductions and/or tax increases.

2.  A solution requires substantial compromise by one or both sides. If one person (or a unified political party) commanded total political power and was willing to use it, they could impose their preferred solution on those who disagree. The last such opportunity was probably 2009-10 when Democrats controlled both chambers of Congress and the White House. Had they so chosen, they could have shored up Social Security on their own terms. No such attempt was made. Today no one expects that either party will single-handedly control the White House, the House, and 60 votes in the Senate within the next few years. Thus if Social Security finances are to be repaired, someone must dramatically compromise: either progressives must accept substantial benefit growth reductions, conservatives substantial tax increases, or both. Unfortunately as I will show below, we are already long past the point where there is precedent for a compromise of this magnitude.

3.  There is a huge disparity between the problem’s urgency and the rhetoric applied to it by substantial factions of the body politic. Even as time is running out for a workable compromise, some continue to play a high-stakes gamble: that if the urgency is downplayed and action delayed past the next few elections, it can be dealt with when the political alignment may be more advantageous to one side. This gambit has now been extended to the point of imperiling Social Security’s long-term outlook. Too many key players, however, do not yet realize this.

From a numbers standpoint, waiting to fix Social Security makes the task more difficult, since the fixes are becoming less and less effective. Removing the payroll tax cap would no longer ensure solvency for the program; similarly, indexing benefits that beneficiaries initially receive to prices rather than wages would no longer do the trick by itself. Blahous makes the point by showing how much the latter policy would save based on 2011 numbers compared to 2005 numbers.

Source: Charles Blahous

As you can see, the savings are smaller now than they were six years ago. Furthermore, the 2012 Trustees Report showed a deterioriation of Social Security's finances compared to 2011, meaning that the point is even stronger now. The recent trend has been worsening projections, so lawmakers may find themselves having to do more faster when they do get around to Social Security reform.

Blahous concludes that waiting much longer will likely result in Social Security needing to be funded from general revenue, if scheduled benefits are to be maintained. This would harm the contributory and self-financing nature of Social Security, as its creators initially intended. He notes that this approach would be at odds with what Social Security advocates want, forcing it to compete with other programs for funds.

The main point, of course, is for lawmakers not to wait to enact a Social Security plan. Doing so will allow for less drastic changes and allow time for lawmakers to phase them in, thus giving beneficiaries time to plan. Reform is only going to get harder the longer we wait.

To see how budget plans would change Social Security, check out our comparison grid.

Day 3 of the Republican National Convention

The final night of the Republican National Convention was an eventful one, featuring speeches from the likes of former Gov. Jeb Bush (FL), Sen. Marco Rubio (FL), and, yes, Clint Eastwood. The headline, of course, was former Gov. Mitt Romney accepting the Republican nomination for president.

His speech told more of a personal story, so it did not touch much on fiscal policy. There were mentions of the current trillion-dollar-plus deficits and an overarching statement about what he seeks to do with the federal budget:

Fourth, to assure every entrepreneur and every job creator that their investments in America will not vanish as have those in Greece, we will cut the deficit and put America on track to a balanced budget.

While the stars of the Republican party were inside the convention, outside, the Fix the Debt team continued to interview convention-goers on their thoughts on the debt. Similar to the videos from Days 1 and 2, the people we talked to expressed concern for the future and implored lawmakers to come together to pass a fiscal plan. Here's what they said about our current situation.

If you agree that fixing the budget is too important to fall victim to partisan politics, join the 140,000 people who have already signed our Fix the Debt petition.

Wessel: With Health Care It's About How, Not How Much

We have talked before about the long run unsustainable growth of our health care spending. But when it comes to controlling Medicare and Medicaid costs, there will inevitably be plenty of room for political attacks. In a video and an accompanying article in The Wall Street Journal, David Wessel explains that health care spending deserves reasoning, not rhetoric.

Because both President Obama and Vice Presidential candidate Paul Ryan want to limit the growth of Medicare spending to the same rate, Wessel argues that it is more important to discuss how each plan proposes to make sure these cuts result in a sustainable program with sufficient access and quality of care. He sums up the two approaches as follows:

President Obama in the Affordable Care Act and some of what he proposed in his budget wants to put the squeeze on health care providers, give them incentives to provide health care more efficiently, with the threat that if they don't the government will pay them less or ratchet down spending on Medicare. 

Rep. Ryan, who has written a pretty detailed Medicare plan that Gov. Romney has basically embraced, says he wants to set up a competitive market where people will shop for Medicare insurance the same way they shop for Medicare drug insurance right now and we will give them a voucher or a subsidy. If they want to buy something more expensive, they will have to pay out of pocket. He hopes that competition among insurance companies, and in the case of his current plan, among insurance companies plus the current Medicare program will serve as the pressure to bring down the cost of health care.

Both plans rely on incentives to push down the cost of health care. In President Obama's plan, there are incentives for providers to treat patients as efficiently as possible without affecting quality of care. In Rep. Ryan's plan, beneficiaries are incentivized to choose more cost effective health insurance plans since they are given a fixed amount of money with which to purchase insurance.

Discussing the pros and cons of each approach would be much preferable to unproductive finger-pointing. As Wessel succinctly states:

Both of these are unproven approaches. Both of them raise a lot of questions. But it would be nice if the debate was about these competing approaches instead of accusing the other side of hurting the elderly.

The full Wessel video is below.

Thursday Night's Convention Preview

Continuing our Updates From the Convention series, we head into the final night of the Republican National Convention. No doubt the speech to watch tonight will be from former Gov. Mitt Romney as he accepts the Republican nomination for President. With the RNC's national debt clock nearing $16 trillion, Mitt Romney should devote part of his speech tonight to his plan to tackle the federal debt. Tonight speaker lineup will also feature former Speaker of the House Newt Gingrich (R-GA), former Gov. Jeb Bush (R-FL), Senator Marco Rubio (R-FL), and of course, the possible mystery speaker.  

We will be back tomorrow with our reaction to Mitt Romney's speech as well as continuing to bring you the views of Tampa's citizens on their thoughts on importance of fixing the debt. Check out our Twitter feed @BudgetHawks as well as that of the Fix the Debt campaign @FixtheDebt. If you haven't yet, check out our videos from Day One and Day Two of the Convention.

Recap: Day 2 of the Republican National Convention

Last night featured an all star cast of speakers, from Vice Presidential nominee Rep. Paul Ryan (R-WI) to Sen. John McCain (R-AZ) to former Secretary of State Condoleezza Rice. But one of the lines that stuck with us from last night came from Sen. Rand Paul (R-KY):

Republicans and Democrats alike must slay their sacred cows. Republicans must acknowledge that not every dollar spent on the military is necessary or well-spent, and Democrats must admit that domestic welfare and entitlements must be reformed.

Senator Paul makes an important point. Putting all options on the table, including revenue increases, can make it easier to come to an agreement that is sufficient in size and scope to fix the problem, as bipartisan plans like Simpson-Bowles and Domenici-Rivlin have shown. Given the current state of Congress, both sides need to come to an agreement to enact a plan and make sure it stays in place.

While both parties will need to understand the value of compromise, ordinary Americans already get it. Outside the Convention, the CRFB and Fix the Debt teams have met many people who are worried about the federal debt's impact on them and their children. They want parties to reach across the aisle and find an agreement. As one citizen put it: 

If the Republicans and Democrats cannot see eye-to-eye, this forever will be the problem. Change your ways, change your views, listen to the people.

We could not have said it any better. We urge you to join the 140,000 citizens that demand that our leaders to come together to Fix the Debt. It is important to listen to the leaders during these conventions, but it can be even more important to listen to the people. Here are the views of more concerned citizens who spoke with the Fix the Debt Campaign:

Join the Campaign to Fix the Debt here and see our first video here.

New York Times: "Is the Deficit Urgent, or a Distraction?"

The New York Times' "Room for Debate" this week takes on our federal debt with a forum entitled "Is the Deficit Urgent, or a Distraction?" Writing in favor of the "urgent" side, naturally, were CRFB president Maya MacGuineas and Fiscal Commission co-chair and Fix the Debt co-founder Erskine Bowles. 

According to MacGuineas, going over the fiscal cliff is too damaging but eliminating the cliff policies without a plan to bring down the debt in the long run could scare crediters.   

The upcoming fiscal cliff will soon cause the moment of reckoning. If we hurdle ourselves off the cliff, doing too much deficit reduction, too fast, and in the wrong ways, we will plunge the nation back into recession; whereas if we punt, we will surely endure further downgrades and quite possibly frighten credit markets into no longer favoring the U.S.

Instead, we must be willing to use this moment as the first step of putting in place a comprehensive debt deal. We will have to be willing to reform all parts of the budget — including health care, Social Security, defense and taxes. Doing so would not only be good policy, but good politics. Already, more than 140,000 Americans have signed a petition called Fix the Debt, asking our leaders to pass a comprehensive debt plan.

Bowles agreed with our motto that any plan to reduce the debt should "Go Big, Go Long, and Go Smart." A comprehensive plan would not only be better than fiscal cliff, it would perserve the country's ability to make the investments it needs well into the future:

The only responsible course of action is to replace the fiscal cliff with a gradual and thoughtful plan to save at least $4 trillion over the next decade and put the deficit on a clear downward path relative to the economy.

Such a plan can lay the foundation for sustained economic growth through a combination of debt reduction, comprehensive tax reform, and maintenance of important investments in education, infrastructure, and high-value research and development.

The potential benefits of a plan similiar to the framework of Simpson-Bowles or Domenici-Rivlin are apparent, but leaders are going to have to reach across the aisle and make tough political choices. It is still very possible to solve this problem, we just need to choose to make these decisions now instead of waiting for a crisis. According to MacGuineas, both sides need to make compromise a priority:

Any plan will have to be bipartisan, because quite frankly this will be just too hard for either party to do alone. And if we let the presidential election deteriorate into political posturing, we will make the job of passing the needed reforms even harder. It’s not enough for the candidates to accuse each other of touching the budget’s sacred cows; they must present their realistic plans to fix the debt — plans in which those sacred cows will have to be touched.

Changes will have to be made. We can do it on our own terms, or we can wait until we are hit with a crisis and are forced to — as we have seen in Greece and Portugal. Let’s hope our leaders are willing to come together to fix the debt while we still have time.

Read the entire debate here.

Convention Watch: Wednesday Night's Preview

Continuing our Updates from the Conventions series, we look forward to tonight's convention schedule, packed with some of the biggest names in the Republican Party. But one of the highlights of the night should be the speech at 10:00pm from the Vice Presidential candidate Rep. Paul Ryan (R-WI). As Chairman of the House Budget Committee and through his The Path to Prosperity, Ryan has brought fiscal policy to the spotlight in this election. We wouldn't be surprised to hear Ryan devote much of his speech to our deficit challenge and perhaps his budget. For a comprehensive look at the evolution of Ryan's budgets over the past few years, check out our comparison grid and our coverage.

Be sure to check out our coverage from the convention, as we will continue tweeting from @FixTheDebt and @BudgetHawks. Also, be sure to check back to The Bottom Line for more of our reactions to the Wednesday night's speeches.

Sen Rob Portman is due to speak sometime after 8:00 E.T. and may also discuss the debt due to his service on the Joint Select Committee on Deficit Reduction, also known as the Supercommittee. Other speakers tonight include Senate Minority Leader Mitch McConnell (R-KY), Senator Rand Paul (R-KY), Senator John McCain (R-AZ), Senator John Thune (R-SD), former Govenors Tim Pawlenty (R-MN) and Mike Huckabee (R-AR), Govenor Susana Martinez (R-NM), and former Secretary of State Condolezza Rice. 

Our full guide to Representative Paul Ryan and his budget can be found here and the comparison chart here.

Fitch: Fiscal Cliff Threatens Triple-A Rating

Fitch Ratings Managing Director David Riley appeared yesterday on Bloomberg Television, suggesting that the fiscal cliff could threaten the U.S.'s AAA credit rating. While Fitch did not join S&P last August in downgrading the U.S. after the debt ceiling debate, it has kept the U.S. on a negative outlook, indicating that it could change its position in the next 12 months. S&P reaffirmed its AA+ rating with a negative outlook while Moody's has kept the U.S. at its highest rating but with a negative outlook. Riley was hopeful that Congress and the President will come together to find a compromise, but the risk of the fiscal cliff still remains a great concern.

You have a situation in which the U.S. could go into recession, potentially quite a bad recession, which is totally avoidable and totally unnecessary. The extent of taking money out of the economy through fiscal contraction doesn't need to be as severe as the fiscal cliff would imply.

All three of the rating agencies have warned about the dangers of the fiscal cliff and the potential recession that could follow. But Riley's statements suggest that if left unresolved the cliff could lead to the U.S. losing its AAA rating.

In terms of the rating, they need to address this issue of tax and spending. They need to make some decisions on that. They need to set out some kind of plan to address the deficit and debt in a sensible way. We are not looking for slash and burn; we are talking about a sensible reduction. If they can’t really put that together in the first half of 2013, there is a significant threat to the loss of the triple-A rating from Fitch.

 

Congress does not have to choose between the extremes of falling off the cliff or the alternative of avoiding it without any long-term debt measures. A comprehensive plan that gradually phases in changes but achieves the goal of eventually reducing the size of our debt as a share of the economy would reassure rating agencies -- as well as household and businesses -- about our country's finances. But it has to be credible.

Voices From the Convention Agree: Lawmakers Should Come Together and Fix the Debt

Our Fix the Debt team has been meeting all different kinds of concerned citizens in Tampa at the Republican National Convention. Many people we have talked to agree that lawmakers need to stop being so partisan and work toward a compromise so that they can get our debt under control. You can see some of the discussions we had in the short video below.

We expect to hear many more people voicing similar opinions during both conventions, since we have already gotten the support of thousands of Americans. Sign the Fix the Debt petition and join the 130,000 people who believe we deserve a plan to solve our debt problem.

Recap: Chris Christie's Keynote Speech at the RNC

After some hurricane-related delays, the Republican National Convention began yesterday in Tampa. We have our Fix the Debt team on the ground (see their tweets at @FixTheDebt) and we will be covering the convention here on our blog. The night was capped off by the keynote speech from New Jersey Governor Chris Christie (full transcript here).

As with many convention speeches, there is a lot of rhetorical flourish, but there were some nuggets about fiscal policy in there. For one, he drew on his experience as governor to compare it to the challenges we face at the federal level. 

There were those who said it couldn't be done. The problems were too big, too politically charged, too broken to fix. But we were on a path we could no longer afford to follow.

They said it was impossible to cut taxes in a state where taxes were raised 115 times in eight years. That it was impossible to balance a budget at the same time, with an $11 billion deficit. Three years later, we have three balanced budgets with lower taxes.

We did it.

They said it was impossible to touch the third rail of politics. To take on the public sector unions and to reform a pension and health benefit system that was headed to bankruptcy.

With bipartisan leadership we saved taxpayers $132 billion over 30 years and saved retirees their pension.

We did it.

Christie then discussed the federal situation, saying that his party would tell the "hard truths" about the budget outlook.

We believe in telling hard working families the truth about our country's fiscal realities. Telling them what they already know – the math of federal spending doesn't add up.

With $5 trillion in debt added over the last four years, we have no other option but to make the hard choices, cut federal spending and fundamentally reduce the size of government...

We believe in telling seniors the truth about our overburdened entitlements.

We know seniors not only want these programs to survive, but they just as badly want them secured for their grandchildren.

Finally, he said that the solutions to our nation's issues--the budget included--would not be easy:

Tonight, our duty is to tell the American people the truth.

Our problems are big and the solutions will not be painless. We all must share in the sacrifice. Any leader that tells us differently is simply not telling the truth.

I think tonight of the Greatest Generation.

We look back and marvel at their courage – overcoming the Great Depression, fighting Nazi tyranny, standing up for freedom around the world.

Now it's our time to answer history's call.

The convention will continue today, highlighted by a speech from Vice Presidential candidate Paul Ryan. Be sure to check back to The Bottom Line for further reaction throughout the week.

Photo from Scott Olson/Getty Images

Fix the Debt Travels To the RNC

The RNC Convention is now fully in session after a weather related recess Monday and the Fix the Debt team is already in place to ensure fiscal responsibility is part of the conversation in Tampa. We hope that the two national debt clocks—one displaying total U.S. debt with the other showing the increase in debt since the start of the Convention—mounted on the wall are a sign that fiscal issues will get a serious look in the next three days. We may even see that tonight as Governor Chris Christie (R-NJ) is due to give the keynote speech.

Source: Becky Lettenberger – NPR

The team will be Tweeting from @FixTheDebt and @BudgetHawks, and readers of The Bottom Line should check back for reactions from the Convention. Whether you are a Democrat, Republican, or independent, join us and the over 130,000 Americans who have signed the Fix the Debt petition that believe fiscal responsiblity is one of the most important issues facing the country and are working to make a solution the centerpiece of this election.

Fiscal Responsibility Questions For The Election

Considering our nation's debt situation, it is more important that ever to ensure that those seeking office have a plan to take on the issue. It's why we have urged debate moderators to ask serious questions about our fiscal problems in the debates this October with the Debate The Debt petition. But it's not all up to the moderators, because citizens can have a big impact on making candidates focus on the right kinds of questions in town hall meeting and along the campaign trail.

In that vein, yesterday Concord Coalition released its Key Questions Voters Should Ask Candidates About Our Nation’s Fiscal Future, a list of ten questions that specifically tackle the greatest fiscal challenges and solutions like Simpson-Bowles. The questions address all of the key components in a successful plan including tax reform, health care, and other entitlement programs.

Similarly, Comeback America Initiative also recently released its Serious Seven, a series of questions in their seven key areas the believe that policymakers will need to address in fiscal reform.

Both of these organizations' proposed questions directly line up with CRFB's core principles for the election season: 12 Principles of Fiscal Responsibility for the 2012 Campaign. In it we recommend that candidates avoid the use of budget myths and gimmicks, instead laying out plans that would target Social Security, health care, and tax reform using hard and honest numbers.

All the questions and principles are intended to be specific enough to discourage candidates from providing politically safe answers that avoid the messy details of deficit reduction. To make this election about the finding solutions to the challenges facing the country, it is critical that voters know where the candidates stand. No matter who is elected in November, they will all face a difficult road ahead. The more realistic a candidate's promises are and the less they lock themselves into unrealistic positions, the more successful they can be.

You can find a full list and explanation of CRFB's 12 Principles of Fiscal Responsibility here and Comeback America Initiative's Serious Seven here

A few of our favorites from Concord Coalition's Key Questions Voters Should Ask Candidates About Our Nation’s Fiscal Future are included below.

******

  • Do you support the comprehensive approach that the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) recommended and its $4 trillion deficit-reduction target? If not, what would your target be and which areas of the budget, if any, would you exempt from deficit-reduction efforts?
  • Could you identify some areas where you see particular opportunities for bipartisan cooperation on fiscal reform?
  • Members of Congress have been discussing the possibility of changes in the tax code that would eliminate many of the tax preferences that now favor specific categories of individual taxpayers, companies or industries. Would you support this approach and, if so, what are some examples of the tax preferences that you would support eliminating? Would you favor using the money it produced to lower overall tax rates, reduce deficits, or both?
  • What should be done to improve the U.S. health care system? If you oppose much or all of the 2010 Affordable Care Act (ACA) , what would you put in its place to improve health care quality, expand insurance coverage and curb the rapid rise in costs?
  • Do you believe Social Security reform is necessary and, if so, what changes would you support?
  • Addressing our $16 trillion national debt will require sacrifices from everyone. What specific examples of federal spending or tax provisions that benefit your state or district would you support eliminating or reducing?