Thursday, December 31, 2009

New York Times on Health Plan Double Counting

Robert Pear of the New York Times has a good discussion of the "double counting" issue with regard to the Medicare (and by extension, Social Security) trust funds in the Senate health reform bill:

At the heart of the fight over health care legislation is a paradox that befuddles lawmakers of both parties. Separate bills passed by the Senate and the House would squeeze nearly a half-trillion dollars from projected spending on Medicare over the next 10 years. These savings would help offset the cost of providing coverage to people who are uninsured. At the same time, federal accountants say the money would shore up the Medicare trust fund, so the program could continue paying hospitals to treat older Americans in the future. In other words, Medicare savings mean both more money available to spend now and the appearance of more money to spend later on Medicare. How is this possible?

Click here to read the whole story. Also look to the Sunday Washington Examiner, where I'll have an article about this issue.

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Wednesday, December 30, 2009

Tuesday, December 29, 2009

Wall Street Journal on the deficit commission trap

The Wall Street
editorializes today against prospects for a bipartisan deficit commission, such as proposed by Sens. Conrad and Gregg and Reps. Cooper and Wolf. The commission, the Journal argues, is a sucker's bet for those who believe in small government.

Democrats now want Republican cover for their tax increases. After signing a $787 billion economic stimulus and embracing two annual blowout budgets that will double the national debt over 10 years even before ObamaCare, President Obama is poised to pivot next (election) year and denounce the horrors of deficit spending. So the White House is now floating a bipartisan commission to reduce federal borrowing, and much of the political class is all for it. We only hope Republicans aren't foolish enough to fall down this trap door, though some are already tempted. A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes. In the 2009 version, Republicans are being teed up to hold hands with Democrats and agree to become the tax collectors for Obamanomics.

As evidence, they cite the 1983 Social Security reform commission headed by Alan Greenspan:

In 1983 Ronald Reagan and Congressional Republicans agreed to decades of job-destroying increases in payroll taxes to "fix" Social Security, which you may have noticed still isn't fixed.

The 1983 deal is hardly what I'd prefer, in particular the unintended "prefunding" through the trust fund. But overall I'm not sure it was a terrible deal for conservatives.

  • The increased retirement age reduces expenditures and keeps people working and boosts the economy.
  • While the average return on payroll taxes is bad, payroll tax increases are actuarially fair at the margin (meaning, if we increase them you'll get more or less the same amount back in benefits). It's not clear to me how many jobs they'd destroy so long as individuals are aware of the relationship between taxes and benefits.
  • The taxation of retirement benefits can also be interpreted as an effective benefit cut, which is better than raising some other types of taxes (say, the maximum taxable wage).

Certainly, the 1983 reforms were a better split between tax increases and benefit cuts than, say, the Diamond-Orszag plan, which is at the conservative end of what most Democrats would accept.

That said, there's an understandable temptation, from both a political and policy point of view, to let the left sleep in the bed they've made. As the Journal points out, it's a bit ironic to call for a deficit commission after pushing through stimulus and health plans that are likely to push the deficit and debt to record levels. They passed the stimulus bill with their own votes and their own priorities, so there's not a ton of reason to give them political cover. Even more tempting is to force Democrats to pass the Medicare cuts necessary to fund their own health care expansion. I'm all for cutting Medicare, since we don't have much of a choice, but it's not clear why Republicans should supports the left's ideas of how to cut Medicare and what to use the proceeds for. If cutting Medicare is to fund other spending rather than reduce the deficit, it's not clear conservatives should care much about the outcome.

Overall I'd favor Republicans taking part in a commission, since inaction leads to disaster and the other choices seem even worse. But they'd have to be very careful not to buy into certain tax increases and uncertain spending cuts. Yet, as I've argued elsewhere, it's really pretty discouraging that our form of government seems wholly unable to get on top of the entitlement financing problem.

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Saturday, December 26, 2009

New releases from AARP’s Public Policy Institute

Economic Security Update

December 2009


The following 2009 publications and more information about economic issues facing older Americans are available at  Hard copies may be obtained by contacting us at or (202) 434-3910.  We hope that you find this information useful and look forward to working with you in 2010.


Recent Research and Policy Analysis


The Employment Situation, November 2009:  Welcome Drop in Overall Unemployment Does Not Extend to Older Workers

Sara Rix highlights the employment and unemployment situation for persons aged 55 and older as of November 2009.  The unemployment rate for the total aged 16+ workforce fell.  However, the picture was not a rosy one for older job seekers, who saw their unemployment rate, duration of unemployment, involuntary part-time employment rate, and job-seeking discouragement rise.  Look for an update in January, with a detailed description of how older workers have fared over the course of the 2008/2009 recession.


Federal and State Income Tax Incentives for Private Long-Term Care Insurance

To help make long-term care insurance more affordable and to encourage purchases, both federal and state governments provide tax subsidies for private long-term care insurance.  David Baer and Ellen O'Brien describe these subsidies, their value to taxpayers (by age and income), and where possible, their cost to federal and state governments.


The Social Compact in the Twenty-First Century

A shrinking proportion of Americans enjoy long-term job security and robust, guaranteed retiree health and pension benefits.  Moreover, millions of workers have never had this kind of security.  The AARP Public Policy Institute describes the history of and trends in the provision of employee benefits, and uses surveys of employers and employees and expert commentary to shed light on the current state of the Social Compact and how it has changed over time.


Employer-Provided Pensions:  Less to Count On

Sandy Mackenzie and Ke Bin Wu assess the extent and type of pension coverage for workers and families in 2007 and over time.  The authors find that the coverage of the employer-provided pension system is limited and there are marked disparities in coverage between rich and poor, Hispanic and white, well- and less well-educated and other social groups. The Automatic IRA would broaden coverage substantially, and improving the Saver's Credit would provide incentives for low- and moderate-income workers to save for retirement.


The Consumer Price Index:  How It Impacts the Federal Budget and Social Security Benefits

Selena Caldera describes the four consumer price indexes and discusses how they impact the federal budget and benefit programs. The Fact Sheet explains the calculation of cost-of-living adjustments (COLAs) to monthly Social Security benefits and why there are no COLAs projected for 2010 and 2011.


Providing Income for a Lifetime:  Bridging the Gap Between Academic Research and Practical Advice

Workers and families nearing retirement face a number of increasingly complicated decisions.  These include when to claim Social Security, how to allocate a portfolio of financial assets, whether to purchase an annuity (and if so, when and what type), how quickly to spend unannuitized wealth, and whether to pay off any outstanding mortgage or purchase a reverse mortgage.  Tony Webb of the Center for Retirement Research at Boston College describes, for each of these decisions, what most households actually do, the conventional wisdom as to what they should do, and what a careful economic analysis suggests that most people should do.  Three short campanion papers discuss making your nest egg last a lifetime, the case for investing in bonds during retirement, and whether you should carry a mortgage into retirement.


Social Security Disability Insurance: A Primer

Social Security Disability Insurance provides protection against a key source of economic insecurity—the loss of earnings due to disability. Today, 9.3 million Americans rely on SSDI to replace lost wages. Ellen O'Brien provides an overview of SSDI, including who is covered, what benefits they receive, how the program is administered, and how it is financed.


Social Security: Ten Facts that Matter

Selena Caldera discusses ten important facts about Social Security, highlighting the program's long-term solvency problem and the critical role it plays in securing the income of many Americans.
Web update available soon at


Older Workers on the Move:  Recareering in Later Life

Career change may become more common as more individuals continue to work past retirement age. Richard W. Johnson, Janette Kawachi, and Eric K. Lewis of The Urban Institute examine the characteristics of workers who change careers in later life.


Social Security Financing: Automatic Adjustments to Restore Solvency

Many countries are facing social security solvency problems as longevity increases and birthrates fall.  A growing number are adopting automatic mechanisms to improve solvency, rather than changing taxes or benefits in an ad hoc manner.  In this paper, John Turner discusses the experience of 12 countries that have adopted auto-stabilization mechanisms.


A New Perspective on Savings for Retirement

John Gist explains how our standard measure of saving provides little insight into household retirement wealth accumulation and draws implications for understanding retirement preparation.


Income, Poverty, and Health Insurance Coverage in 2007

Ke Bin Wu finds that between 2001 and 2007, real median incomes were stagnant or falling, and poverty rates were level or rising for most age groups.  Older households lost less ground; however, median incomes were lower for household headed by persons aged 65 and older than for any other group.


19 Million Working Age Americans Have a Disability that Limits or Prevents Work.  Most Are Poor or Low-Income.

Ellen O'Brien and Carlos Figueiredo explain why people with disabilities are often at a disadvantage in the labor market and call on insurance and assistance programs to provide more timely and adequate support.


Employment Support for the Transition to Retirement:  Can a New Program Help Older Workers Continue to Work and Protect Those Who Cannot?

David Stapleton of Mathematica Policy Research, Inc., proposes a program to encourage later retirement by helping older workers increase their earnings and postpone reliance on their retirement benefits until the benefits are larger.


The Earned Income Tax Credit and Older Workers 

Janet McCubbin explains why the age limits that prevent workers over age 64 or under 25 from qualifying for the earned income tax credit should be eliminated.


Upcoming Publications


Hybrids and Other Alternatives to Traditional Defined Benefit and Defined Contribution Plans

The decline of the traditional defined benefit pension (whose effective coverage was never particularly broad) and the rise of the 401(k) plan leave many Americans entering retirement without a steady lifelong stream of income.  Sandy Mackenzie examines the role of hybrid pensions and less conventional alternatives to the traditional pension in mitigating this problem and providing insurance against living an unexpectedly long post-retirement life.


The Effect of Resource Tests and Eligibility for Federal Assistance Programs:  Effects of Current Rules and Options for Change

Millions of poor and low-income older Americans are not eligible for public programs that supplement income or provide assistance with the costs of necessities, including food and health care.  Resource tests in some public programs have not been updated in decades and prevent low-income people from keeping even modest savings--or deter them from seeking assistance.  Mark Merlis provides estimates of the number of people excluded by asset tests today and examines the impact of several options for reforming asset tests in the Supplemental Security Income program, Food Stamps (now called SNAP), the Medicare Savings Programs, and the Medicare Part D Low Income Subsidy.

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Wednesday, December 23, 2009

More on trust fund double counting

Only you don't have to take it from me this time. Over at AEI's Enterprise blog

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Thursday, December 17, 2009

Chuck Blahous on Social Security and Work

The Hudson Institute's Chuck Blahous has a new article in National Affairs looking at Social Security reforms that would improve incentives to work and delay retirement. These include altering the factors used to calculate benefit reductions and increases for claiming before or after the full retirement age; changes in the way Social Security calculates workers' average earnings, upon which benefits are paid; reductions in payroll taxes for older workers; and possible repeal of the Retirement Earnings Test.

In addition, Chuck discusses recent experience with Social Security reform, the effect of market downturns and budget deficits on the case for personal accounts, and other issues. It's a good piece that's well worth checking out.

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Longer lives, bigger deficits?

Some experts are predicting life spans dramatically higher than those projected by Social Security. If people do live longer, how will that affect Social Security's finances? Check it out over at the Enterprise blog.

One factoid I probably should have included in my post: SSA's projections for life expectancy in 2050 are lower than those for Japan today. I'm not saying we'll necessarily exceed expectations, but if any area of the Trustees projections seems pessimistic this could be it.

That said, this shouldn't have any effect on the personal accounts debate (or what's left of it). Increased life spans affect personal accounts in exactly the same they affect the traditional DB program. The real issue here is how large the problem could get if we don't start working on it early.

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Understanding the Earnings Test

My Research Assistant Adam Paul over at AEI's Enterprise Blog

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Friday, December 11, 2009

Presentations from NASI event: Demystifying the Deficit, Social Security Finances, & Commissions


  • Jim Horney, Center on Budget and Policy Priorities [download]
  • Nancy Altman, Consultant and former Executive Assistant to Chairman Alan Greenspan, 1982-83
  • Eric Kingson, Syracuse University and former staff, Greenspan Commission [download]
  • Ashley Carson, OWL-The Voice of Midlife and Older Women [download]
  • Janice Gregory, NASI
  • Tom Bethell [download]
  • Statement Of Staff To The 1981-83 National Commission On Social Security Reform (33K)

Speaker Biogaphies (84K) [download]

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Thursday, December 10, 2009

My opportunity to use the word “youthquake”

Writing for the Johns Hopkins student newspaper, Prateik Dalmia tells young folks to get their political priorities in order:

The majority of young Americans today are liberal idealists moved by a visceral reaction against the Bush era. The numbers speak for themselves: Nearly half of 18-29 year olds (47 percent) identify as Democrats compared to 28 percent who identify as Republicans (according to Young Democrats for America). For the last three general elections we have been the Democratic Party's most supportive age group. However, the social reforms of the Democratic Party which we so fervently support do not benefit us. In fact, the exorbitant cost of reforms such as Obamacare, when added to those of Social Security and Medicare, will only damage our chances for prosperity.

Click here to read the whole article, which is very good.

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Wednesday, December 9, 2009

Interesting new Disability Insurance demonstration project

Social Security has awarded a contract to Abt Associates to run an experiment allowing disability insurance (DI) recipients to have higher earnings before their benefits are withdrawn. Currently DI beneficiaries can earn only $1,640 per month without risking their eligibility. The following draws from Abt's press release:

For many years, there has been concern about the low rate at which SSDI beneficiaries return to work. Although SSA encourages employment for workers with disabilities who receive these benefits, program rules that reduce benefits to zero after earnings reach the threshold of Substantial Gainful Activity (SGA) create a financial disincentive to employment. Congress mandated this study to test the effect of reducing the SSDI benefit by $1 for every $2 of countable earnings above the SGA threshold. In addition to offering this positive financial incentive, the demonstration will also test whether offering BOND participants enhanced counseling—to assist them in understanding the rules changes and taking advantage of them—will lead to higher earnings than only eliminating the "SGA cash cliff."

"We are pleased to have this opportunity to undertake a project of such significance for the Social Security Administration," said Katie Heintz, Division Vice President for Social and Economic Policy at Abt Associates. "We have a strong team in place to conduct and complete this important work."

The $121 million contract is for a period of nine years. Because of its complexity, it requires a diverse collection of skills and capabilities, including experience designing and executing large-scale random assignment impact studies, expertise in disability and employment policy, and ability to implement secure data systems and manage complex data collection. The project also involves designing a communications strategy, operating a call center, and providing training and technical assistance to local agencies.

After a pilot period to test important implementation procedures, the full demonstration is scheduled to be launched in April 2011 and will involve approximately 90,000 participants in ten large, randomly selected sites around the U.S. SSDI beneficiaries will be randomly assigned to treatment and control groups for the purpose of testing the incentives. The results will be followed over the course of the nine-year period.

The Abt Associates team for this project includes: Mathematica Policy Research; Cherokee Information Services; HTA Technology; LionBridge Technologies, Inc.; Convergys; the Virginia Commonwealth University Rehabilitation Research and Training Center; Palladian Partners; the Center for Essential Management Services; MEF associates; Institute for Public & International Affairs (University of Utah); Proia Associates; TransCen; and Rick deFriesse Consulting.

In theory you should get both more work and more DI applicants, since the current earnings limit is presumably a disincentive for some folks to apply, but it will be interesting to see how things balance out. The US doesn't really allow for partial disability, so there are some DI beneficiaries who probably could work more but are prevented from doing so by program rules.

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New articles from Social Security Bulletin, Vol. 69 No. 4

The latest issue of the Social Security Bulletin is available online. Here's the table of contents:

The Age-18 Redetermination and Postredetermination Participation in SSI by Jeffrey Hemmeter and Elaine Gilby

This article describes the outcomes of the redetermination of Supplemental Security Income (SSI) eligibility when a child recipient reaches age 18. Statistics on the characteristics of youth whose eligibility is redetermined are presented using 8 years of administrative data, and the relationship between these characteristics and both an initial cessation decision and a successful appeal or reapplication for SSI are discussed.

The Retirement Research Consortium: Past, Present, and Future by Paul S. Davies and T. Lynn Fisher

This article provides an overview of the Retirement Research Consortium (RRC) from the Social Security Administration's perspective, including a brief history of the development of the RRC, a discussion of the aims of the RRC, and some thoughts on its future. The mission of the RRC is to plan and conduct a broad research program to develop Social Security and retirement policy information to assist policymakers, the public, and the media in understanding the issues. The RRC has been a remarkably successful extramural research venture that has advanced the knowledge base on Social Security and retirement issues, trained new scholars to become the next generation of Social Security and retirement policy experts, and provided objective, research-based input to the policymaking process.

The Research Contributions of the Center for Retirement Research at Boston College by Steven A. Sass

This article reviews the research contributions of the Center for Retirement Research at Boston College over its 10-year history and their implications for Social Security and retirement income policy in three major areas: (1) Social Security's long-term financing shortfall, (2) the adequacy of retirement incomes, and (3) labor force participation at older ages as a means to improve retirement income security. The center has received substantial funding support from the Social Security Administration (SSA) in each area and has also successfully leveraged SSA's investment by attracting funding from other sources.

Social Security Research at the Michigan Retirement Research Center by Richard V. Burkhauser, Alan L. Gustman, John Laitner, Olivia S. Mitchell, and Amanda Sonnega

The Office of Retirement and Disability Policy at the Social Security Administration created the Retirement Research Consortium in 1998 to encourage research on topics related to Social Security and the well-being of older Americans, and to foster communication between the academic and policy communities. The Michigan Retirement Research Center (MRRC) has participated in the Consortium since its inception. This article surveys a selection of the MRRC's output over its first 10 years and highlights several themes in the Center's ongoing research.

Social Security in a Changing Environment: Findings From the Retirement Research Center at the National Bureau of Economic Research by David A. Wise and Richard G. Woodbury

Since September 2003, the Retirement Research Center at the National Bureau of Economic Research has conducted a coordinated series of investigations on Social Security in a changing environment and the potential routes to sustainable solvency. The Center supports extensive collaborative research over a multiyear horizon to achieve a more fully integrated understanding of Social Security's challenges and the changing environment in which it operates. This article is an overview of the studies completed since the Center's inception.

Several features from our Web site are also reprinted in the Bulletin each quarter. These include

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How I could have gotten confirmed by the Senate…

Slightly off-color, but I have to admit this is what I thought when I read about Sen. Baucus's recent troubles…

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Tuesday, December 8, 2009

New paper: “The Swedish Pension System and the Economic Crisis”

The Center for Retirement Research at Boston College has released a new paper by Annika Sundén titled "The Swedish Pension System and the Economic Crisis." Here's the abstract:

The steep drop in financial markets in 2008 coupled with the ongoing economic recession pose immediate challenges for some public pension systems, particularly those that rely partly on equity investments.  In the case of Sweden, the crisis provides an initial 'stress test' for a major pension system reform implemented earlier this decade.  The new system created by the reform was designed to be fiscally sustainable by including automatic adjustment mechanisms to maintain balance in response to short-term economic and financial fluctuations and long-term demographic changes.  Last fall's plummeting stock market produced a decline in Sweden's pension reserve funds and triggered a first-time automatic reduction in the pension indexation scheduled to occur in 2010.  In response, policymakers decided to spread out the required adjustment over a longer period.

This brief is organized as follows.  The first section describes how the Swedish pension system is designed to maintain fiscal stability.  The second section documents trends in the system's financial status.  The third section explores the potential impact of the economic crisis on pension benefits under the system's original rules.  The fourth section describes the policy response.  The final section concludes that even automatic adjustments may produce offsetting political considerations.

Click here for the full paper.

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Monday, December 7, 2009

Chuck Blahous: Social Security deficits into 6th month

Over at e21, the Hudson Institute's Chuck Blahous points out that Social Security's cash deficits, which began in May, have now continued for six months. This makes the chances of a strong revival in program cash flows less likely.

Data recently made public by the Social Security Administration confirm that in October, 2009, the program reached a grim milestone:  six consecutive months of operating cash deficits.  This is the first time Social Security has faced this situation over the entire time period, dating back through 1987, for which SSA posts the monthly data online.

From May through October inclusive, Social Security's outgoing payments have exceeded incoming program revenue, generated mostly by the payroll tax (with a smaller amount coming in via the taxation of benefits).  When a cash-deficit situation develops during a period that the program is still technically solvent, full benefits continue to be paid.  The operational deficit is effectively made up with general revenues, putting additional strain on a sagging federal budget.

The primary reason for the early arrival of Social Security's deficits is the recession, which is depressing payroll tax revenue.  The drop in employment, and its corollary effect on payroll taxes, is coinciding with a long-anticipated surge in benefit claims as the Baby Boomers begin to hit the retirement rolls.  These factors have combined to accelerate Social Security's financial difficulties relative to previous projections.

You can track Social Security's month-to-month finances at SSA's website here.

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New working paper: Using Inflation to Erode the U.S. Public Debt

The National Bureau of Economic Research released a new working paper, titled Using Inflation to Erode the U.S. Public Debt by Joshua Aizenman by Nancy Marion. Here's the abstract:

As a share of GDP, the U.S. Federal debt held by the public exceeds 50 percent in FY2009, the highest debt ratio since 1955. Projections indicate the debt ratio may be in the 70-100 percent range within ten years.    In many respects, the temptation to inflate away some of this debt burden is similar to that at the end of World War II. In 1946, the debt ratio was 108.6 percent. Inflation reduced this ratio about 40 percent within a decade. Yet there are some important differences -shorter debt maturities today reduce the temptation to inflate, while the larger share held by foreigners increases it. This paper lays out an analytical framework for determining the impact of a large nominal debt overhang on the temptation to inflate. It suggests that when economic growth is stalled, the U.S. debt overhang may trigger an increase in inflation of about 5 percent for several years. This additional inflation would significantly reduce the debt ratio, even with some shortening of debt maturities.

Given where things seem to be heading, this is pretty useful information.

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Friday, December 4, 2009

Dean Baker’s “practical” solution to health reform…

In railing against an entitlements reform commission, Dean Baker writes:

serious people would focus on fixing the country's health care system, but the Peterson crew focuses on cutting Medicare. One obvious way to both cut Medicare costs and start to get U.S. health care costs under control would be to allow beneficiaries to buy into more efficient foreign health care systems, but the Peterson crew doesn't seem interested in proposals that don't cut benefits for working people.

Okayyyy… Look, Dean's argument that people would be better off under foreign health care plans is a good one – I'm not one who hides behind the "America has the best health care system in the world" talking point. (Best quality? Probably – when you throw massive amounts of money at a problem it's hard not to get something back in exchange. But best quality for the price? I'm not at all sure about that.)

But does Dean really think we'll get very far asking the Canadians, Brits, etc. to take over our health coverage? Leaving aside travel costs and adverse selection, those systems have problems of their own and I doubt they're looking to solve ours. But if Dean thinks this is the way to go maybe he should contact their embassies and see what they think.

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Video from recent AEI conference, "Keeping Granny On the Job."

I've managed to embed video of the recent AEI event at which Estelle James and I discussed incentives to delay retirement in the U.S. and Chile. Take a look.

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Upcoming event: Demystifying the Deficit, Social Security Finances, & Commissions

This sounds interesting, though given a less-than-fully-rounded panel I get the feeling that tax cuts will get more blame for future deficits than they deserve – click here for my take on that question.


Demystifying the Deficit, Social Security Finances, & Commissions


December 11, 2009 10:00 AM–11:30 AM


Event Information  


Capitol Visitor Center, Senate side, Room 209/208; see below for details  

Registration Deadline



Elizabeth Lamme

A briefing that will demystify...

...The general fund deficit:

  • How big is the problem?
  • What is the role of tax cuts and entitlements? 
  • How does health care spending fit?

...Social Security & the budget:

  • How does Social Security fit in the budget?
  • What is the shortfall and how can we fix it? 
  • How do taxpayers feel about Social Security?


  • How do commissions fit in the democratic process? 
  • What lessons can we learn from the Greenspan Commission?

Speakers include:

  • Jim Horney, Center on Budget and Policy Priorities
  • Nancy Altman, Consultant and former Executive Assistant to Chairman Alan Greenspan, 1982-83
  • Eric Kingson, Syracuse University and former staff, Greenspan Commission
  • Ashley Carson, OWL-The Voice of Midlife and Older Women
  • Janice Gregory, NASI

~ Refreshments will be served.~


LOCATION DETAILS: The Capitol Visitor Center, the new main entrance to the U.S. Capitol, is located on the East front at First Street and East Capitol Street, NE. This event is being held in SVC Room 209/208. To see a map, click here

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