→ Economy
Long-Term Deficits
| Tue Nov. 24, 2009 7:24 PM PST
Martin Wolf says that although long-term deficits are a problem, it's too early to rein in spending right now:
What is needed, instead, are credible fiscal institutions and a road map for tightening that will be implemented, automatically, as and when (but only as and when) the private sector’s spending recovers. Among the things that should be done right now is to put prospective entitlement spending — on public sector pensions, for example — on a sustainable path. It is, in short, about putting in place a credible long-term tightening that responds to recovery automatically.
That sounds like a good idea to me. That is, it would sound like a good idea if I could think of any way to make automatic future stabilizers truly credible. Right now, I don't think you could pass any significant entitlement cuts or tax increases in the first place, let alone pass them embedded in a some kind of structure that seemed truly invulnerable to future political shifts. But I'm all ears if anyone has any ideas.
(Adding: I'm entirely in favor of a Social Security commission, similar to the 1983 commission, tasked with producing a conventional basket of small revenue increases and small benefit cuts that would balance Social Security's book in the long term. This is, admittedly, a relatively small thing, since Social Security's fiscal condition has improved over the past few years and is now projected to eventually go out of balance by only about 1.5% of GDP. But aside from the virtue of even small acts of fiscal rectitude, it would also have the huge virtue of taking Social Security off the table as a political issue. If we could, at long last, get the Washington Post and the Wall Street Journal and the Peterson folks to quit droning on endlessly about this, we might actually clear the way for discussion of some real issues. And it's the kind of thing that can be put in place now and credibly be expected to unfold as planned.)
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... it would also have the
Submitted by Snarki, child of Loki (not verified) on Tue Nov. 24, 2009 8:11 PM PST.
... it would also have the huge virtue of taking Social Security off the table as a political issue. If we could, at long last, get the Washington Post and the Wall Street Journal and the Peterson folks to quit droning on endlessly about this...
In your dreams. You might as well dream that the GOP and its fellow travelers stop being lying hypocritical whiners.
Oh wait, that's exactly what it would take to make them STFU about Social Security, commission or no.
Maybe we can get the social
Submitted by Another Brad (not verified) on Tue Nov. 24, 2009 8:36 PM PST.
Maybe we can get the social security commission to use some kind of trick to hide the decline. Works for climate "science."
Yeah, nothing will ever take it off the table
Submitted by Nat on Tue Nov. 24, 2009 8:41 PM PST.
The Republican Party does not engage any issues honestly. Period. End of story. Plus, any raises in revenue will only facilitate cuts elsewhere, just like in '83. The Republican Party views the trust fund as a sham to be ignored when the bill comes due in the future. They are not objecting to the long term short fall, they want to renege on repaying the monies in the trust fund when the pay as you go payroll tax system falls short.
The deal in '83 was essentially this: the payroll tax would subsidize the income tax for two generations in exchange for income tax to meet any payroll tax short falls after that point. We should honor the deal. There is nothing magic about where the taxes come from to meet Social Security's obligations. Income taxes work just as well as payroll taxes, and that was what the Greenspan Commission established in '83.
Spot on
Submitted by RZ (not verified) on Wed Nov. 25, 2009 3:24 AM PST.
Agreed, Nat. The 83 agreement was a political compromise that let Reagan's tax cuts stay in place while we shrank the deficit on the backs of Social Security. The payoff for retirees was to come down the road, when other taxes would fill the gap in Social Security funding.
Now that gap is staring us in the face. That's why the WSJ and their wealthy friends don't want to pony up. Like Maj. Renault, I'm shocked - shocked.
Once again, the average guy did his part, and the rich guy wants to bail.
Those guys will never shut up. Hell, they're still pissed about FDR, and all he did was save the country twice.
Greenspan Commission
Submitted by Bruce Webb (not verified) on Wed Nov. 25, 2009 8:42 AM PST.
Just make it stop.
The Greenspan Commission had two major goals. One was to restore Social Security to what the Trustees call 'Short Term Actuarial Balance' which is defined as a projection that shows the Trust Funds with one year of reserves for each of the next ten years. The other was to restore Social Security to 'Long Term Actuarial Balance' which is defined as a projection that shows the same thing over the next seventy five years, but only on average, they knew there would still be rocky sub-periods due to Boomer demographcics. The compromise reached in a side deal by Robert Ball for the Democrats/Tip O'Neill and Dick Darman for the Republicans/Reagan did that, Social Security which had been within a few months of not being able to pay out 100% of benefits was stabilized and began to build the Trust Fund back towards a full year of reserves, a point that was not reached until 1992. The actual dollar amounts in the Trust Fund for the decade after the compromise were very small in the context of Reagan tax cuts/military spending, the notion that there was some grand bargain trading off the two is pure fantasy as can be seen by inspecting the numbers.
http://www.ssa.gov/OACT/TR/2009/VI_cyoper_history.html#159726
The very large surpluses that developed in Social Security starting in 1996 were neither planned nor expected, in fact the outlook for Social Security declined significantly between 1993 and 1996 only to improve for the same reason that 1992's "deficits as far as the eye can see" turned into surpluses by 1999, employment and especially real wage for workers improved in ways not seen since the immediate post war years.
That this spurt of real wage and other economic growth in the period between 1996 and 2004 had the result of pre-funding Boomer retirement at least on paper was a surprise to pretty much everyone, the idea that Greenspan et al had predicted the 90's Boom and figured it in in their 1983 calculations is simple nonsense.
Pre-funding Boomer Retirement is a myth, the intent of the Commission in 1983 was not to build up a big reserve, in fact they set the schedule of tax increases in a way that kept Social Security as close to Pay-Go as possible and as the linked table shows did a pretty damn good job of that from 1984 to 1996 with the Trust Funds gradually growing to their legally mandated targets and then stabilizing. The amazing surge in revenues after 1996 opened up amazing possibilities as Social Security not only seemed to have saved itself (by 1998 it was on a path to being over-funded) the payroll tax was throwing off such huge surpluses that it would have been possible to fund a transition of Medicare to Single Payer under President Gore. But Bush stole Florida and the rest is literally history.
But none of that was planned and there never was any bargain. In fact the Greenspan Commission deadlocked and failed to meet its Dec 1982 deadline. At which point direct secret negotiations started outside the framework of the Commission between Bob Ball and Dick Darman at Jim Baker's house resulting in a deal that ultimately got sign-off by the Commission. The full story will be revealed with the publication of Bob Ball's posthumous autobiography whose working title is "In a Great Cause" (i.e. Social Security within which Bob worked for some fifty plus years) in a chapter called "The Greenspan Commission: What Really Happened". I happen to know some people who were staff to the Commission and was sent an advance copy of the chapter. And those same people are organizing an effort against this latest round of calls for a Bi-Partisan Commission. Because when it comes to Social Security they just don't work, people's attitudes are just too hardened and even in 1983 Reagan had to do some one on one arm twisting to get enough Republicans to sign on to get the majority needed to send the bill to Congress.
But to repeat the Grand Bargain to trade off pre-payment of Boomer Retirement on paper for short term Reagan tax cuts is pure Myth, a convenient fantasy. The Commission knew full well about the demographic challenge faced by the system during the late 2020s and simply ended up kicking the ball down the road for a couple of decades. Nobody thought they had a perfect fix, they simply got Social Security back to a Pay-Go status for the interim.
No way, Kevin
Submitted by Kevin's Dad (not verified) on Tue Nov. 24, 2009 8:55 PM PST.
The last commission organized advance payment of a regressive tax, supposedly to establish a trust fund. But, in reality it was just used as an enabler of cuts in the progressive income tax (and is still being used that way.) Meanwhile, we're told that the trust fund is "just paper".
Absolutely no more prepays!!!!
Projections are making the same mistake as 2001, in reverse
Submitted by Razdoctor (not verified) on Tue Nov. 24, 2009 9:02 PM PST.
It was only 2001 when the CBO projections were calling for a $5 trillion surplus. Greenspan famously warned that we would lose US Govt as an asset class. The mistake they were making at the time is that they were taking a strong economy and a record high tax receipt to GDP level and pojecting that out. I liked Robert Barbera's explantion in his book Cost of Capitalism.
Isn't everyone making the same mistake again in reverse. We are taking the worst economy since the Great Depression, the lowest level of tax receipts to GDP in 60 years and forecast doom and destruction. It doesn't seem that hard to me to get back to 2001. Repeal the Bush tax cuts and hope the wars end soon. Due to increases in medicare and interest on debt and weaker economy, we won't get back to surpluses, but we will get back to normal/modest levels of annual defecits/GDP.
I think the situation must look scary to the average American. But someone needs to tell the people, we need to fix the economy now, and we will be able fix the budget again like we did in the 1990's.
Razdoctor said, It doesn't
Submitted by MarkH on Wed Nov. 25, 2009 6:40 PM PST.
Razdoctor said,
It doesn't seem that hard to me to get back to 2001. Repeal the Bush tax cuts and hope the wars end soon. Due to increases in medicare and interest on debt and weaker economy, we won't get back to surpluses, but we will get back to normal/modest levels of annual defecits/GDP.
I think the situation must look scary to the average American. But someone needs to tell the people, we need to fix the economy now, and we will be able fix the budget again like we did in the 1990's.
Pres. Obama has spoken numerous times about bending the curve to get us back onto a longer-term projected good place. In earlier times we could just fix something and that was that. But then, the Republicans figured that if they could just runs us into debt so far we couldn't see the other end that Dems wouldn't be able to fix anything -- and the Repubs could then say, "See, government doesn't work!" Well, current Dems are trying to fix healthcare insurance and Repubs are fighting it (as per their policy).
Where does that put us wrt SS and other things?
It means we can't fix anything immediately and even the longer-term fixes we're trying to do are not guaranteed to work (and in the shorter-term their effects aren't necessarily going to produce good political feedback (re-election).
Our solution then is to fix things as well as we can and campaign on the things we have done that the electorate can see and on how the Republicans are still the "party of No". They didn't used to be that way, but since the "Reagan Revolution" and Newtie Gingrich they have been subversives and not leaders.
So, we fix healthcare and begin a Green Revolution and set SS & Medicare on a course to health and all the other obvious fundamental foundational things which will set us on course for the next 50 years. Then we do immediate things like end wars, push the economy to create jobs and perhaps win enough re-elections to keep the ball rolling in the right direction.
Every time the Repubs oppose progress we have to hammer them.
I don't know how they got the idea there were enough Southern Good 'Ol Boys who want to overthrow gov't, but we should be able to win this political fight. It might help that the West is area we can compete in, especially if we can woo some Libertarian types to our cause. To achieve that we may need to open up the Treasury window a bit (cutting back on the power of the Fed) and cut back on some other gov't intrusions into private lives.
A couple of things I'd like to see in the very long run which I think fit the Libertarian ideas is a gradual move toward more self-sufficiency and less on Social Security. Heresy your say? Well, yes, but the information the government has on people via SS is unacceptable. Same perhaps with Medicare. Ending our tax system which allows gov't to know everything about our financial activities has to also be on that list. To that end a simpler tax system, perhaps a VAT or something which doesn't require all information to go to an IRS, could happen some day.
A 'small government', if it can be achieved without loss of effectiveness is something we should look for.
Winning the NorthEast and the West will give Dems a great chance in every Presidential race and most others. Fighting for states like Florida could be the hardest as it's outside that big picture, but we won it in '08, so it's doable.
If we could, at long last, get the Washington Post and the Wall Street Journal and the Peterson folks to quit droning on endlessly about this,
You seem not to grasp that those people are out to destroy Social Security entirely, not fix it. They will never, ever quit short of victory.
Social Security
Submitted by bakho (not verified) on Tue Nov. 24, 2009 9:28 PM PST.
SS benefits for high income earners are currently taxed, with the taxes returned to the SSTF. One way to pay out less SS is to tax the benefits of high earners. This makes SS function more like insurance (it is after all insurance). People who don't need the money currently pay into the system with taxes. If something happens to their income stream, then the tax drops off and they get the full benefit. Adjusting the taxes on SS is one way to fix SS relatively painlessly.
Health care is the huge problem and costs must stabilize at some point. They cannot increase at current rates. That is not sustainable.
Oh, goodie
Submitted by gyrfalcon on Tue Nov. 24, 2009 9:58 PM PST.
Let's by all means make some "small benefit cuts" to SS's already puny pay-out. This is another one of those "we have to start somewhere" ideas of yours, is it, Kevin? And yet another one targeted at the elderly.
May i PLEASE remind you that almost nobody has a pension anymore, everybody's investments have taken a huge beating, and once you get to a certain age, you have a very much FIXED income, while expenses are guaranteed to continue to rise?
Oh, yeah, just a few small benefit cuts for SS. No problemo, right?
Kevin, it is astonishing you
Submitted by Alejandro (not verified) on Wed Nov. 25, 2009 5:04 AM PST.
Kevin, it is astonishing you can say that an unsustainable pyramid scheme is "only" going to be out of balance by 1.5% of the GDP of the world's largest economy. That's hundreds of billions of dollars each year that have to be taken out of the economy.
Really, you know better than this
Submitted by mattH (not verified) on Wed Nov. 25, 2009 6:39 AM PST.
You knew better when they tried to change this in a few years back and you should know it now. The "fiscal conservative" Republicans will never stop fighting to limit and eventually abolish SS. Couple that with the historical ignorance of what the '83 "reforms" did and we can't stop fighting for an increase in income taxes to fund it. The fact that there has been such a massive increase in top income tells you where a lot of that SS trust fund money went, so it should be obvious where the funds need to come from.
Wait, this sounds familiar
Submitted by Anonymous (not verified) on Wed Nov. 25, 2009 8:25 AM PST.
Remember when the Democrats voted for war "to take it off the table so that we can get back to talking about health care/the economy/social security"? Now we're supposed to agree to gut Social Security so that we can get back to talking about ... what? the war?
OK, but then let's do it the Right way.
Submitted by eb (not verified) on Wed Nov. 25, 2009 8:39 AM PST.
Fine, as long as we bargain like Republicans. We propose to triple Social Security payouts, and pay for that with a 99% tax on all income over, say, one million dollars a year. Then, after much negotiation, we can compromise on merely doubling Social Security payouts, paid for by a steeply progressive income tax, peaking at 88% for top earners.
That would not only be the right thing to do, it would be just as likely to shut up the Pete Petersons of the world as your proposal, or anything else short of total destruction of the Social Security program.
The problem is the distribution of wealth
Submitted by Anonymous (not verified) on Wed Nov. 25, 2009 9:37 AM PST.
We have the largest imbalance of wealth since the 1920's with the same economic results. Yet rather than redistribute income through a fair system of progressive taxes, Kevin joins the rich in advocating for hammering the poor again by cutting entitlements, one of the few remaining avenues for redistributing wealth in our increasingly inequitable system. Banana republic here we come.
Entitlement Cuts
Submitted by Mike M. (not verified) on Wed Nov. 25, 2009 9:46 AM PST.
We don't need entitlement cuts, that's ridiculous. If anything, the taxes most people pay are too high for the minimal entitlements they receive. Judicious cutting at the Pentagon would go a long way towards solving our financial issues.
Social Security
Submitted by hewhoasks (not verified) on Mon Nov. 30, 2009 7:14 PM PST.
I favor retaining Social Security as it is - but shaping it to stay always within its means.
I propose:
That annual Social Security benefit increases be calculated exactly as they are now.
That projections of the balance in the Social Security trust fund be made, on reasonable assumptions (as are now used to make forward projections) for the next 40 years.
If the trust fund is projected to remain in the black for the next 40 years then implement the calculated increase.
If the trust fund is not solvent for the next 40 years make the benefit amounts be 99% of what was calculated, but not less than current benefits. If a lighter reduction results in a projection of solvency for the next 40 years make only that lighter reduction.
Let the new benefit levels be the basis of the following year's increases.
This IS a "reduction in benefits." The intent is to make Social Security solvent within the limitations of the existing FICA tax rate. If the benefits are reduced to 99% of what they would be in each of 40 years that would result in a cumulative reduction to 66% of what they benefits would have been. That is sizable and is on the order of the projected long-term shortfall.
If the people through their representatives decide a greater level of retiree support is needed than what this approach provides then let them enact that through the Congress.
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