Friday, January 16, 2009

Obama echoes Bush on Social Security Reform

The Washington Post
reports that in a meeting with Post editors and reporters, President-elect Obama again pledged to take on the challenges of Social Security and Medicare.

President-elect Barack Obama pledged yesterday to shape a new Social Security and Medicare "bargain" with the American people, saying that the nation's long-term economic recovery cannot be attained unless the government finally gets control over its most costly entitlement programs.

That discussion will begin next month, Obama said, when he convenes a "fiscal responsibility summit" before delivering his first budget to Congress. He said his administration will begin confronting the issues of entitlement reform and long-term budget deficits soon after it jump-starts job growth and the stock market.

"What we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further," he said. "We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's."

"…This, by the way, is where there are going to be very difficult choices and issues of sacrifice and responsibility and duty," he said. "You have to have a president who is willing to spend some political capital on this. And I intend to spend some."

What strikes me is how much Obama's language on Social Security reform echoes that of President Bush, who also spoke of not kicking the can down the road, of spending political capital, and so on. To his credit, President Bush spent political capital on Social Security reform, but for a variety of reasons he didn't get very much in return – from the manner in which the Bush administration engage both Republicans and Democrats in Congress, to a desire on the part of Democrats to win a victory on an issue important to their governing vision, to an atmosphere of distrust built around the war, and to the general difficulty of ever reforming a large entitlement program. It's to be hoped that Obama and his economic advisors – some of whom were leading opponents of Bush's reform efforts – have taken away some lessons from the failed 2005 reform effort so the next round might be more successful.


Bruce Webb said...

Well one lesson they seem to have learned is to not incorporate a 'privatization' component. Which I suspect will exclude any type of PRA proposal. And at least at the Obama 2008 website they came out strongly against increases in retirement age.

A cap increase is already on the table though pushed back to 2019, and I suspect there will be some talk of moving to price indexation from wage indexing. But my overall feeling is that Social Security as currently configured is generally safe here, the thirty plus year set of plans (Ferrara, LMS etc) to transition it to a 401k style plan not likely to be an option. Which I strongly suspect will come as a severe disappointment to some.

Barkley Rosser is nervous about any tinkering with the system (Econospeak) Obama Drinks Social Security Kool-Aid but I don't think supporters of traditional Social Security have anything to fear from a numeric based discussion that does not start from a set of pre-conceived policy positions. I am planning an AB post putting this in the context of the 2001 Commission (probably up later this morning). Because a rhetorical echo doesn't necessarily translate into a mirrored policy.

Bruce Webb said...

Andrew G. Biggs said...

What will be interesting is the degree to which they attempt/succeed at filling the financing gap through taxes. Obama's 2-4% tax above $250k fixes at more 15% of the problem, meaning more taxes would be needed. But if so, I think you'd see many people (including some Dems) expressing a preference for add-on accounts rather than tax increases.

What's interesting is how things change at the margin. It seemed from 2005 that people didn't want to substitute accounts for existing benefits; however, my guess that they'd prefer to use add-on accounts rather than tax increases to boost payable benefits closer to scheduled levels. It's not incoherent, but it is interesting.