Social Security First?

(cross posted at freeforall)

Bob Pozen writes that reform of Social Security is the route to a deal to avoid the looming ‘fiscal cliff.’ I wrote something similar in March, 2011, and followed up with more on my view of the benefits of moving sooner rather than later on Social Security reform, a theme that is echoed in my book. Several quick points about Social Security and the myriad policy problems we face.

  • Social Security is not as big a problem as is Medicare (nowhere close), for example, but there is a fiscal shortfall that would result in a 20-25% benefit cut in about 25 years with no action, so something needs to be done. And because Social Security is a simple program (it mails people checks), any fix that was agreed to would work roughly as planned. It truly could be taken off the table by fixing it, allowing for focus on health reform (that will never be finished).
  • There are only so many ways to close the fiscal shortfall in Social Security (increase taxes and/or reduce benefits; CBO w options), and none of these options are made better by delay. One reason to go ahead with Social Security is that it can actually be done.
  • Health reform is many times more difficult than is Social Security reform. Whether it is implementing the ACA, or the mysterious Republican “step by step” approach that will be unveiled, well someday, there will be many mid course corrections and things that don’t work well under any health reform approach. That is because it is much more complicated than simply mailing checks.
  • Progressive reforms such as increasing the minimum benefit, and raising the payroll tax cap could be argued for more forcefully in the context of moving ahead to address Social Security’s fiscal shortfall. Any changes and offsetting benefit reductions for upper income retirees can also be done more gradually the sooner we start.

There is not likely to be much deficit reduction gotten from Social Security over the long run, nor should there be; most of that should come from an increase in taxes collected as a percent of GDP over time, and health care reform efforts that attempt to slow the rate of health care cost inflation. However, a deal on Social Security could be the beginning steps to a more comprehensive deal that paves the way for a long term sustainable budget. And I continue to believe that taking credible steps to address some of our long term problems would help make the case for more short term efforts to boost the economy.We need to walk and chew gum at the same time, but now appear unable to do either.

For me anyway, there would also be a large intangible benefit that would come from seeing our political system practically address some of the problems we face.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

44 thoughts on “Social Security First?”

  1. The problem with your argument is this line: “It truly could be taken off the table by fixing it, allowing for focus on health reform (that will never be finished).”

    There are quite a few people on the left and in the Democratic Party who are convinced that chopping Social Security benefits now will not take the issue off the table, as the Republican Party as currently constituted can not be trusted to bargain in anything resembling good faith (see debt ceiling deal for most recent example or the rapid transition of the Romney/Heritage healthcare plans with individual responsibility enhacning mandates that were the conservative alternative to single payer or employer mandate schemes into the grossest violation of individual rights EVAH complete with specious distinctions of activity vs. inactivity)

    I think that if one assumes that the GOP can and will bargain in good faith and accept both the concept of social insurance AND actually paying for it with taxes, then your argument holds weight. I just don’t think the empircal evidence of the past twenty years supports such a belief.

    1. You could be correct, but I don’t think the Rs have so much stomach for another crack at SS after what happened to them in 2005 on that.I think the grown ups eventually have to come back…..don’t they? If not…

      1. The Republicans have made clear they’d like to destroy Social Security once and for all. Like Dave, I see no evidence that “grownups” in the Republican Party are resurgent, and all the latest polling data says the opposite. They will propose the destruction of Social Security in the form of a bill “reforming” Social Security into something much more like, I don’t know, a shrubbery. Then they will campaign for the shrubbery and insist that only they are willing to protect your Social Security. The media will dutifully report that the Republicans are for “Social Security reform” and the Democrats are against it, and no one will be rude enough to say it’s just a stupid shrubbery.

        1. This, this, a hundred times this, a thousand times this. No one in their right minds can expect either “grown ups” to exist in the Republican party or “journalism” at any level above rank stenography (when applied to Republicans, anyway) after the grotesque dereliction of duty shown by the media regarding Paul Ryan and Medicare.

      2. “the grown ups eventually have to come back”

        This should be an easy question to address.

        How have “grown up” Republicans fared in recent primaries?

        Are the up-and-coming crop of Republican politicians (governors, state attornies general, etc.) showing evidence of being “grown up”?

        Has a shift in interest group politics made opponents of social programs less influential within the Republican Party?

        I see little evidence to suggest that the “grown ups” are coming back soon. If you want those of us on the left to support your ideas, this is a crucial question to address. If Republicans are credible partners in good government, then you shouldn’t have much difficulty in providing evidence to support that contention. If they are not, then your ideas are on awfully weak footing. Take this statement for example:

        “most of that should come from an increase in taxes collected as a percent of GDP over time, and health care reform efforts that attempt to slow the rate of health care cost inflation”

        I know of no prominent Republican who would endorse this statement in principle, let alone in the specifics.

        1. “I don’t think the Rs have so much stomach for another crack at SS”

          Our contemporary American Republicans seem capable of talking about nothing else – unless it be the imbecilic birtherism of Romney and Trump. The Ryan “budget” certainly got enough GOP votes – and a key part of it was fast-tracking social security “reform”, even if Ryan didn’t quite have the testicular fortitude to spell out what this would mean in terms of hard, cold facts. After all, as the GOP makes clear day in day out, granny must be sacrificed so that the Pentagon can have over-priced technology that doesn’t fulfill any useful purpose and the Koch brothers can be saved from the abject penury of having an annual income of only hundreds of millions of dollars.

  2. I think that the Republicans will pocket the savings and use them in the general budget to cut taxes yet again on the rich.

  3. Republican leadership and idealogues might like to destroy social security, but they know they would be murdered at the polls if they did. Nothing would drive middle class people back to the Democrats as fast.

    1. You’re not inventive enough. Once Republicans figure out how to destroy Social Security and simultaneously blame Democrats for it (a trick only a bit more impressive than “Keep the Guvmint Out of My Medicare.”) they’ll do it so fast it will make your head spin.

      1. Bush’s attempt to destroy Social Security was hampered by the (relatively) good economy, so that many of the cries that Social Security was DOOMED fell on deaf or even cynical ears. After a few years of shock doctrine, the idea that we can’t afford something that could be funded by a tiny change in current levels of taxation (and even _is_ already funded under certain scenarios) has taken hold.

        Let’s also remember the way that Medicare has already been played. It took a huge amount of chutzpah to transform “We’re going to make medicare more efficient so that it costs less tax money to deliver the same quality of health” into “Death Panels! Democrats are cutting medicare!” and even more to make the counterproposal of “saving” medicare by cutting the funding so that people pay more to get reduced quality.

  4. Why the f*** are so many people so f***ing eager to shovel SS down the gaping maw of Republican tax cuts?

      1. The Gods of the Applebees Salad-bar have spoken. To David Brooks. Just the sort of rare mind a god would choose to talk to at midnight. Ours is not to wonder why. We must gut social security and grin bipartisanly at the voters as they realize with warm feelings of gratitude just what they can expect in their frail, GOP-engineered old age.

  5. Progressive reforms such as increasing the minimum benefit, and raising the payroll tax cap could be argued for more forcefully in the context of moving ahead to address Social Security’s fiscal shortfall.

    I don’t understand. Surely raising the payroll tax cap would make a dent, at least, in the non-overwhelming shortfall. If that’s not a part of “reform” then you’re saying reform just means cutting benefits.

    1. Putting payroll tax cap to 90%ile of wages (the essence of Greenspan commission reform of 1983) raises ~0.2%GDP. 1 percentage point increase in tax with no other change would raise 0.3% GDP, and uncapping the payroll tax to apply to all wages (like Medicare) would raise 0.9% of GDP…just to give a sense of magnitude. The shortfall is ~0.75% of GDP. This link has a helpful table showing around 30 options modelled by CBO http://donaldhtaylorjr.wordpress.com/2011/03/30/cbo-social-security-options/

  6. Please explain in detail why Social Security needs to be “fixed” or “reformed”. Even the pessimistic projections of the Trustees have it in very good shape through 2027, and it is stronger and better funded than any Federal Gov’t program except the Postal Service Retirement Fund.

    If your answer is that Congress will never agree to pay back the money it borrowed via the “SS Trust Fund” dodge, well, you then need to explain exactly how any “fix” would work given that an economy the size of the United States’ can’t invest its retirement money ‘somewhere else safe’.

    Cranky

    1. “Comrades!” he cried. “You do not imagine, I hope, that we pigs are doing this in a spirit of selfishness and privilege? Many of us actually dislike milk and apples. I dislike them myself. Our sole object in taking these things is to preserve our health. Milk and apples (this has been proved by Science, comrades) contain substances absolutely necessary to the well-being of a pig. We pigs are brainworkers. The whole management and organisation of this farm depend on us. Day and night we are watching over your welfare. It is for YOUR sake that we drink that milk and eat those apples. Do you know what would happen if we pigs failed in our duty? Jones would come back! Yes, Jones would come back! Surely, comrades,” cried Squealer almost pleadingly, skipping from side to side and whisking his tail, “surely there is no one among you who wants to see Jones come back?”
      Now if there was one thing that the animals were completely certain of, it was that they did not want Jones back. When it was put to them in this light, they had no more to say. The importance of keeping the pigs in good health was all too obvious. So it was agreed without further argument that the milk and the windfall apples (and also the main crop of apples when they ripened) should be reserved for the pigs alone.

  7. How does increasing the minimum benefit contribute to solving a social security shortfall? Or are you simply suggesting that progressives should demand costly expansions of social security in the context of trying to close that shortfall, making closing it even more difficult?

    Cranky, Congress can’t pay back the SS Trust Fund, because it WAS a dodge they spent every cent of it, and then some. Anything they ‘pay back’ has to come out of current revenues, there’s nowhere else for it to come from. Now, if you’re suggesting that all other government spending be automatically reduced by the amount of that shortfall, I’m there. Otherwise, there’s no use pretending that SS is in good shape just because they’ve got a pile of IOUs from the very government they’re part of.

    1. = = = Brett Bellmore@5:05: “Cranky, Congress can’t pay back the SS Trust Fund, because it WAS a dodge they spent every cent of it, and then some. Anything they ‘pay back’ has to come out of current revenues, there’s nowhere else for it to come from.” = = =

      Sure they could. They could raise taxes to get the money back from the people Mr. Greenspan, Mr. Bush, and Mr. Norquist gave it to. Put the marginal rates back to where they were when Ronald Reagan left office.

      If you mean that per Republican Senator Rand Paul that “compromise” consists of determining how much to cut since there will never in the history of the United States be another Federal tax increase, well, that’s a problem for Mr. Taylor’s argument.

      Cranky

      PS Could you pop back to some of the threads over the last three weeks where you have left clear refutations of your positions hanging unanswered and close them out? You do seem to have a tendency to disappear from a discussion when hard facts refute your theories.

      1. Only the last three weeks? Good job you didn’t ask Brett to clean up his vanishing acts on here and Obsidian Wings over the last several years!

    2. @Brett Bellmore
      increasing minimum benefit cost money as you say. I say it is impt and worth it, but that means you have to cut benes for higher income folks and raise taxes. My point to progressives is driving the agenda means these sorts of changes could be pushed, and they are more plausible/easier the earlier you start.

    3. Q: What do you call a guy who owns a million dollars worth of US Treasury Bills?

      A: A millionaire.

      (Brett, if you have lots of “worthless” T-bills cluttering up your house, feel free to give them to me. I’d be happy to come pick them up, even.)

    4. Brett,

      How hard is it to understand that the government didn’t “spend” the Trust fund, but rather borrowed the money. Do you think the cash in the fund should have been put into a safe-deposit box? If not, what should have been done with it?

      Please bear in mind, as you make your case, that a government that chooses to default on its obligations to the Trust Fund because it is in dire fiscal straits is fully capable of seizing other investments the fund would have made as well. Further, if it hadn’t borrowed from SS then it would have borrowed elsewhere.

      This whole “They Spent the Trust Fund” line betrays a woeful ignorance.

      1. = = = Byomtov @ 7:26: “How hard is it to understand that the government didn’t “spend” the Trust fund, but rather borrowed the money.” = = =

        That’s only true if Congress pays back the money it borrowed. If it refuses to do so (and that looks like where we are headed at the moment, particularly if the Radical Right maintains control of the House in 2012) then it will have effectively spent the Social Security money.

        Cranky

        1. That’s the point of my second paragraph.

          If you think the government is going to default on the SS bonds, then it’s inconsistent to think that it wouldn’t fnd some other way to help itself to SS funds if they were invested differently. Congress can do it what it wants, remember.

      2. If they borrowed the money, and then kept it in a bank account, you’d have a point. As they borrowed it and spent it, you have none.

        And do we really have to go over the fact that you holding an IOU from me is an asset, and me holding an IOU from me is NOT an asset? Yet again?

        1. I think you’re the one beating a dead horse here, not me.

          If Congress is willing to default on Treasury bonds why exactly would it be unwilling to seize the bank account, or use it for purposes other than paying benefits?

          You refer to an IOU from the government to itself as meaningless, implying the Trust Fund is a fiction. But then why wouldn’t it equally be a fiction with respect to the bank account? If money coming in to SS is “really” just coming to the Treasury to be spent, then what difference does it make if it’sput into a bank account labeled “Social Security” or one labeled “US Treasury?” Congress can still spend it how it wants, just like it can default on the bonds SS actually holds if it wants.

          What you want to claim is that with a bank account Social Security would be a separate legal entity, with ownership rights that Congress could not rescind, while under the current system it isn’t.

          Not true. Plainly not true.

  8. As various previous people has said, this is simply unrealistic. The only reforms you could get the Republicans to agree to now are cuts, and since the worst thing that could happen to SS if you didn’t reform it are cuts, I don’t see the upside.

    If you think there is a proposal that the Democrats could make that would be fiscally sound, somewhat balanced, and popular enough to force the GOP to agree, then I think that would be a great idea, but I do not believe such a proposal can be crafted.

    1. The bio given under “about us” says Duke. But, much more important, the Kahn man is not listed as a contributor at all … So true, but can’t he take Bellmore with him?

  9. I don’t think the Rs have so much stomach for another crack at SS after what happened to them in 2005 on that.

    Don’t forget that Obama himself was hot to “reform” Social Security last July and backed off in September only under pressure. Since Obama obviously isn’t in principle against reform that would reduce benefits (e.g., price indexing), if I were the GOP I’d figure he might well offer it again if he felt he needed a bargaining chip.

    1. Yes, I remember; something will be done at some point, so better to try and drive the convo. The route I offer in my book is more progressive that what he supposedly nearly agreed to with Boehner last summer, as is simpson bowles which assumed implementation of the ACA and didn’t raise Medicare age and had far more tax increases. The Rs need a deal as well, because they will be easily defeated if they ever try a go it alone privatization of soc security again.

      1. This is wrong on two counts:

        Fist, just because something needs to be done sometime does not means it needs to be done now.

        Second, you’re making an incredibly in justified assumption that ‘we’ can drive the process, rather than the right driving it.

  10. I agree a reform like what I have described does away with fears of s very large cut for all beneficiaries in 25 years, with a smaller one for some (the details are impt), a tax increase of some sort for some, and a benefit increase for some (poorest). I get that many people don’t like this, but what is your counterfactual, meaning when you read what I write and don’t like it, what alternative path for social security do you have in mind?

      1. Here is Krugman saying people bait and switch by combining SS and Medicare and he is very critical of that. I hope I was clear that SS is much smaller problem than Medicare in the post; doesn’t mean there is no SS problem, though. And Krugman notes that SS with nothing done will be “abble to pay three quarters of benefits”….
        http://krugman.blogs.nytimes.com/2012/04/09/socialsecuritymedicareandmedicaid-strikes-again/

        I focused on the size of the cut as ~20-25%, he focuses on the size of what remains, but the reality of the two is the same. I guess the word to describe it (large, medium, small) is somewhat subjective. This post has a figure of it http://donaldhtaylorjr.wordpress.com/2011/03/29/the-benefit-of-acting-now-to-reform-social-security/

        And in general Krugman says we have had too small stimulus, shouldn’t have been bleeding govt jobs, and need more now to boost jobs, etc. I agree with all that. He usually does say something like ‘eventually we need to address the deficit.’ I focus more on the ‘eventually’ part and think we need to do it sooner than he does. If I thought we could just go full stimulus/econo boost now and later shift to that fine, but I think the beginnings of the longer term plan may actually be the route to more stimulus now. I realize lots of folks aren’t convinced.

    1. OK, here’s an alternative path.

      First, reject the “budget crisis” construct. By conceding that we must cut spending, by accepting the bogus idea that governments must tighten their belts like households, the Obama administration has essentially surrendered to the Republicans on principle, and can only quibble about the details. I’m not just saying we can’t win on this ground. I’m saying that if we join in the budget crisis hysteria we are on the wrong side.

      Second, reject the idea that Social Security is in crisis. It’s a pay-as-you-go system that has paid as it went from the moment it started until 2010. Now we’re spending the excess revenue accumulated previously, at a rate so slow that we’ll burn through the trust fund in 20 years. That’s a very very slow-motion problem that does deserve a deliberate response, but it’s no crisis. I think if we found out an asteroid was expected to hit the Earth in 2032, we’d be calmer about it.

      Third, be honest about the history of Social Security. It was proposed by the Socialist Party. It was co-opted by the Democratic Party, still its imperfect stewards today. It was opposed, and still is opposed, by the right wing generally and, now, by the mainstream of the Republican Party. We don’t have a bipartisan consensus on Social Security. We don’t seek one. We aren’t waiting for one.

      Fourth, after we’ve done the political work necessary, after we’ve put the right wing in legislative minority and the destruction of Social Security out of their reach, then we can make some adjustments to bring Social Security’s revenue and expenditures into line. Removing the income cap on the payroll tax would be simple and obviously fair. If it were up to me, we’d replace the payroll tax with a surtax on income, so Social Security revenues would be progressive instead of regressive. We can quibble about the details, but the party that wants to destroy Social Security has no place in the discussion.

  11. Social Security ran a cash flow deficit of $49 billion in 2010, and the 2011 trustees report indicates such deficits will be the norm by 2017. The report also reveals that Social Security’s unfunded obligation stands at $9.1 trillion, in net-present-value terms; in other words, it owes $9.1 trillion more in benefits than it will take in through taxes. The program will experience further financial strain as the worker-to-retiree ratio keeps falling. Medicare faces a 75-year unfunded obligation of $34.8 trillion, in net-present-value terms, and must be reformed if we want to ensure that younger generations have quality health care when they retire.

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