For some reason I can't embed it, but here's a link. The focus is on the CBO's projection that for the first time since the 1980s Social Security will run a cash deficit this year. CBO projects a deficit of around $28 billion, moving back toward balance over the next few years and then back into deficit again.
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Tuesday, February 9, 2010
Me on Fox Business talking about Social Security
Monday, February 8, 2010
Me talking about Social Security on Fox, Part 1
Social Security's been in the news a bit lately and I've been the beneficiary with a few TV spots. Here's one that focuses on the problems facing the program.
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USA Today: Rash of retirements push Social Security to brink
USA Today's Richard Wolf reports that "a rash of retirements" – and disability applications – have worsened Social Security's finances, pushing it into deficits several years before government agencies had previously projected. At the same time, it's worth asking, "The brink of what?" It's not the brink of insolvency, since solvency is measured by the balance of the trust fund – which remains at over $2.5 trillion – rather than by cash flows. In fact, what we're facing isn't a problem for Social Security so much as a problem caused by Social Security: that is, Social Security payments will be made because it can and will redeem bonds held in the trust fund. However, after decades of being subsidized by Social Security, the non-Social Security budget will be forced to pony up and start repaying what it borrowed. The problem is that the money isn't there, and in fact the budget is facing record deficits due to falling tax revenues and rising spending. This is a time when tough choices need to be made or they'll be made for us, by the Chinese and others overseas who are currently financing our deficits. Better to make them ourselves.
Why did the budget not use Trustees projections for health cost growth?
Over at AEI's The American, I write about an arcane but (I think) important issue in the Obama administration's FY 2011 budget: for the first time, I argue, the administration has rejected the projections of its own Trustees for health care cost growth, substituting a rate twice as high as projected by the Trustees (and around one-third higher than projected by CBO). The result, I argue, is that the budget seems to confirm the administration's argument that health care cost growth is by far the biggest driver of future entitlement costs. Population aging, I've argued, is an equal cost driver over the long-term and the biggest source of costs over the next several decades. A knowledgeable friend counters my argument on several fronts: First, the FY 2011 budget isn't the first to reject the Trustees assumptions. The FY 2008 and FY 2009 Bush budgets also did not use the Trustees projections for health care cost growth. This is true, but the final two Bush budgets were explicitly modeling the effects of policy changes – principally, capping the tax exclusion for employer provided health care – that were designed to reduce the rate of health cost growth. These budgets made clear that the current law baseline projection was that of the Medicare Trustees. The FY 2011 Obama budget, by contrast, uses different assumptions for current law than do the Medicare Trustees, with the effect that Medicare spending is projected to rise to 22 percent of GDP by 2085, versus less than 9.5 percent under Trustees assumptions. Second, the historical rate of health care cost growth is a good guess for how costs will grow in the future. This is certainly a defensible argument, though both the Medicare Trustees, an expert group that advised them, and the CBO think that costs will slow over time. What I think is missing, though, is some explanation in the budget that a higher rate of cost growth actually makes sense. The budget itself is a bit cagey on this; it doesn't explicitly state that its baseline projections are its best guess for the future. Rather, it merely states that if historical costs rates continue then this is what we'll see in terms of overall costs. My skepticism on the administration's health cost assumptions comes down to this: they've often argued that rising per capita health care costs, not population aging, are the biggest driver of entitlement spending. By this argument, reforms to reduce cost growth in the private sector would leak over into Medicare and Medicaid, painlessly reducing entitlement costs – "Healthcare reform is entitlement reform," the President likes to say. This conclusion is not true under Trustees or CBO assumptions, but is true under the new assumptions in the budget. Perhaps I'm just being too cynical, but given some of the other arguments the administration has used over the course of the health care debate that turned out to be underwhelming I was suspicious over how this change came about and what drove it.
Wednesday, February 3, 2010
CBO estimates of stimulative effect of payroll tax cut underwhelming
The Congressional Budget Office released a letter to Sen. Robert Casey (D-PA) estimating the effects on employment of a proposed policy of giving employers a one-year, nonrefundable credit against their payroll tax liability for increasing their payrolls in 2010 from their 2009 levels. Here's the short story: CBO estimated that reducing payroll taxes for firms that increased their payrolls would raise output (gross domestic product, or GDP) by a total of $0.40 to $1.30 between 2010 and 2015 for each dollar of budgetary cost. CBO also estimated that the policy would add 8 to 18 cumulative years of full-time-equivalent employment in 2010 and 2011 per million dollars of total budgetary cost. Thus, the cost of increasing employment by one full-time person for one year in 2010 and 2011 would probably be between $56,000 and $125,000. Although such a policy would have economic benefits in the short run, it would also add to already large projected budget deficits. Unless offsetting actions were taken to reverse the accumulation of additional government debt, future incomes would tend to be lower than they otherwise would have been. Given that the median wage of a full time worker is around $37,500, effectively paying $56,000 to $125,000 to produce each job sounds a bit steep to me. With this policy – as with, it seems, much of the rest of the stimulus bill – it may have been more cost effective for the government create employment by directly hiring new employees than by indirectly attempting to stimulate the economy. (That said, a private sector worker produces goods and services while a government worker produces, well, more government, so there's more to the equation than that.) In any case, this isn't very encouraging news.
Tuesday, February 2, 2010
Allan Sloan: Social Security next on bailout list?
In the Washington Post, columnist Allan Sloan points to Social Security's funding problems: Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout. Some would argue – correctly, in some important ways – that Social Security isn't so much being bailed out as being repayed; after all, the federal budget has borrowed around $2.5 trillion from Social Security over that 25 years of surpluses and it's not unreasonable that Social Security ask for it back. That said, there's some inappropriate anthropomorphizing of government programs here: "Social Security" isn't a person that lends or borrows. Rather, individuals are called on to finance borrowing or repayment, either through higher-than-needed payroll taxes in the past (when Social Security was the lender) or higher-than-needed income taxes in the future (when Social Security will need to be repaid). It's the point of view of citizens that matters, and from this point of view the real driver is simply costs: as the baby boom generation retires, Social Security costs will rise. And those costs must be borne by the working age Americans who support the program. 'Nuff said.
Monday, February 1, 2010
David Walker on how to fix Social Security
NCPA's daily Policy Digest reports on former GAO director David Walker's recommendations to fix Social Security in his new book Comeback America. Here's NCPA summary: "For the next few years, Social Security is fine, however, the system is already setting off alarm signals. The disability program is already in a negative cash flow position and the retirement and survivor's income program is expected to have a negative cash flow in 2010-2011. If we keep on doing nothing until the trust funds that finance the program run dry in 2037, monthly benefits will have to be cut by about 24 percent across the board and the cuts will get deeper than that, says David Walker, who served as the seventh comptroller general of the United States and was the CEO of the U.S. Government Accountability Office. " "In his new book, "Comeback America," Walker has several suggestions on how to save Social Security. "Benefits: "Revenues: "Savings: "Source: David M. Walker, "Comeback America: Turning the County Around and Restoring Fiscal Responsibility," Random House, January 12, 2010."
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