President Obama is now widely acknowledged to have defaulted on his leadership obligations by opting for an election-driven budget that ignores economic reality and the guidance of his Fiscal Reform Commission. Fortunately, there are signs that a bipartisan group of senators is willing to step into the vacuum and take steps to roll back the growing debt that threatens the foundation of our prosperity and freedom.
But not so fast! Suddenly Democratic leaders Reid and Schumer, with at least the acquiescence of President Obama, are demanding that Social Security be excluded from any effort to deal with the federal budget outlook. They argue that Social Security has nothing to do with the deficit and should not be part of any solution. This reveals a terrible misunderstanding of economic and budgetary facts.
The prospect of tripling federal debt, rising debt-to-GDP ratios, and ever-increasing interest costs send the message to international capital markets that the U.S. is planning to become an increasingly risky borrower. Lenders will respond by demanding ever-higher risk premiums — higher interest rates — and may demand higher taxes before continuing to lend. The U.S.’s current fiscal future promises to involve higher interest rates, higher taxes, or both.
In the other direction, a serious plan now to address the prospect of higher debt would eliminate those interest-rate and tax threats. That is, it would be the single best pro-growth policy the federal government could adopt.
A casual examination of the budget shows that entitlements — Social Security, Medicare, Medicaid, and Obamacare — are already 60 percent of spending and on track to explode. As the Fiscal Reform Commission made clear, entitlement reform is the heart of addressing what it described as America’s “moment of truth.”
Obviously, any immediate improvement in the outlook for entitlement spending would send a valuable signal to credit markets and improve our economic outlook. Naturally, it would be good to focus on the big dollars in Medicare, Medicaid, and Obamacare, but the administration has taken health programs off the table. Republicans will try, but the only promising area for bipartisan entitlement reform consistent with long-term economic growth is Social Security.
In sum, from an economic-policy point of view, Social Security reform is the most important thing that a bipartisan group of senators could do. As the past two years have proven, the liberal leadership has it exactly backwards.
And Social Security does affect the deficit. At present, Social Security is running a modest cash-flow deficit, increasing the overall shortfall. As the years pass, these Social Security deficits will become increasingly larger. They are central to the deficit outlook.
One hopes that entitlement reform, especially Social Security, will remain a priority for the 112th Congress. Republicans in the House have committed to include these reforms in their budget. Senate Republicans cannot control the agenda, but one should not be surprised to see some conservative senators assuming the leadership mantle and pushing for Social Security reform.
It would be nice to see someone in Washington willing to lead.
Sorry, but there are few misconceptions in your report.
1) SS is running a surplus, so it has no affect on the current deficits. Let's focus on needs to be fixed like Medicare/Medicaid (see Affordable Care Act below).
2) The Fiscal Reform Commission made no recommendations, so your statement is false.
3) The CBO just reported that repeal of Affordable Care Act will add $210-Billion to the deficit over the next 10-years, so the Republicans are the one not serious about debt reduction.
Reply to this commentLinkReport AbuseSo the Democrats are saying, "Feel free to discuss ways to fix this problem. However, fixing the cause of the problem is off-limits."
Once again, Obama, Reid, and Schumer put the "Der" in "Leadership."
Reply to this commentLinkReport AbuseDemocrats understand very well that Social Security is at the heart of the budget problems. They also understand very well that in the last election senior citizens came out against them because of Obamacare and they see SS as a tried-and-true weapon to use against the GOP to bring these seniors back in line. Their intent is obvious. Based on history it will work.
Reply to this commentLinkReport AbuseSo...if Social Security doesn't contribute to the deficit why is it part of the federal budget?
Reply to this commentLinkReport AbusePoliticians being politicians! Unfortunately, the 'laws' of economics could care less about nationality, history, 'exceptionalism' or the date of elections.
Until this nation's political class actually realizes (and that means sustained political pressure) that from an economics point of view how unsustainable the political machinations we see today actually are as related to budgetary issues, nothing will be done.
A republican (small r) government will not react until there are serious political ramifications to the dithering, all the while our economic 'Rome' burns. I fear that this dithering will continue until there actually is a fiscal crisis that requires political attention.
Such dithering is the way of Washington. Dither until you can't dither anymore. Then, speak the truth on the lecture circuit and on television shows.
Reply to this commentLinkReport AbuseGood to know, per the spirited barney, that SS doesn't love the current deficits. No word on future ones, though.
Reply to this commentLinkReport AbuseI have a very modest proposal about Social Security. Republicans should not touch a single dollar, for now. Instead, simply pass a law requiring actuarial standards of accounting for Social Security similar to those for most private enterprises.
Reply to this commentLinkReport AbuseI think you have it backwards...Yes, SS is part of the budget, but it was not designed to be that way. It is supposed to be self supporting, ie the money for payments comes from its own taxes, SS taxes.
Cutting social security payments beneath their actuarially adjusted "fair amount" means that people are not getting what they put in. Which means the general budget has used social security taxes for its purposes rather than having them only for social security recipients.
Reply to this commentLinkReport AbuseWhat recommendations made by the Commission? Was there ever a vote and what was approved?
Reply to this commentLinkReport Abuse"SS is running a surplus, so it has no affect on the current deficits."
1) Where's the surplus?
2) If Social Security is a government run program, and the government currently has a deficit, then how is the Social Security program "not" contributing to the government's deficit?
Keep in mind that we had created a smart program where we would cut the payroll tax and we financed the cut in payroll taxes by borrowing money to cover benefits. I though borrowing contributes to the deficit?
Reply to this commentLinkReport AbuseIt aggravates me that Social Security, Medicaid, and Medicare are included as one big mess.
Social Security is almost okay and, with a couple of minor fixes, will remain okay.
Medicaid is for the poor and "poor" is usually defined off of median income. "Poor" should be defined as the amount required to provide food, clothing, and shelter - something usually less than the definition of poor.
Medicare B is a big, big problem, primarily because its cost is between 5K and 6K per year per person and 95% of Medicare B recipients pay less than $1200 per year - with the remainder coming out of general revenues.
Reply to this commentLinkReport AbuseBlarney,
Really? Drat those right wing lying media conglomerates!
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And before you chime in with something about these numbers excluding interest, the only way its get paid is if the the clowns in DC borrow more money to pay it. THe interest is all on bonds issued by the Federal Gov so we are on the hook for it one way or another.
Reply to this commentLinkReport Abuse"The prospect of tripling federal debt, rising debt-to-GDP ratios, and ever-increasing interest costs send the message to international capital markets that the U.S. is planning to become an increasingly risky borrower. Lenders will respond by demanding ever-higher risk premiums — higher interest rates — and may demand higher taxes before continuing to lend."
since the democrats can't get a tax increase thru congress the normal way, maybe they are counting on the credit market to force congress to pass one.
Reply to this commentLinkReport AbuseWell, yes, it's true that SS has run a surplus which unfortunately was put in the with the general gov't accounts to mask the "true" deficit. Those funds were put into bonds, just like a 401k plan or insurance company would put its money into bonds. Those bonds were limited to US gov't bonds...why? Because they are the least risky.
So of the 14T in debt, the gov't owes something like 2T to SS and 1T to medicare. SS is expecting that money to be paid back, just as an insurance company would if it bought US gov't bonds.
The best way to think about SS is as a 3rd party, non-government entity. It has to stand on its own, it pays benefits but pays them from its own taxes...benefits are paid out according to how much you put in. YOu put in twice as much, you get twice as much (not exactly but that is the general point). It's not a welfare system.
The liberal way to look at it is as though the SS taxes were general gov't taxes and payments should only be paid to those who are "needy"...they could then reduce the gov't debt from 14T to 12T by saying "we owe that money to ourselves!" as some do. Well, OK, but without that 2T in gov't bonds, then SS can't pay what is promised. And it becomes just another welfare system...tax from everyone according to income and pay only to those who are "poor".
The conservative way would be to say that "SS people should get out what you put in (actuarially adjusted)". Reagan upped the SS taxes so that SS could afford to pay its benefits...those people who paid in should get out what they paid. If SS ran a surplus, and it did, then the gov't HAS to pay back that money, just as it would to any other creditor.
One more point is that some people say "but the money loaned to the gov't is GONE, it's just an IOU". This is sophistry. Of course the money is GONE. The gov't isn't going to borrow money and stick it in a vault...it (like any other entity) borrows it to spend it. Just as a bank doesn't have your tens and twenties in the vault...it loans them out...and gives you, yes, an IOU.
Reply to this commentLinkReport Abuserevised and extended remarks......
all the polls and the recent election indicate that the american people prefer spending cuts, not tax increases, to address our fiscal problems. so, the democratic hope to increase taxes to keep their spending gains is apparently stymied. however, by submitting a fantasy budget and by refusing to reform SS and medicare and obamacare, it could be that democrats hope to scare the credit markets.
perhaps democrats are counting on the credit markets to create a crisis situation sooner rather than later, thus pushing the american people and congress into a corner and forcing congress to pass large tax increases.
Reply to this commentLinkReport AbuseBack in the 80's, I put forth an idea that SS retirement age should start increasing by one month per year until the system became actuarilly sound.
Reply to this commentLinkReport Abusebarneysghost wrote, "SS is running a surplus, so it has no affect on the current deficits."
Actually, SS had a $40-billion deficit in 2010, and the CBO projects annual deficits without end, rising to about $120 billion in 2021. (See page 123 of the Congressional Budget Office paper "The Budget and Economic Outlook: Fiscal Years 2011 to 2021.")
Reply to this commentLinkReport Abusebrianbbb wrote, "One more point is that some people say 'but the money loaned to the gov't is GONE, it's just an IOU'. This is sophistry."
No, it's not sophistry. Going forward, the existence of those bonds bought with the payroll taxes is of no significance when it comes to **actually paying** the retirement and disability benefits the recipients have been lead to expect. As the liberal Brookings Institution wrote in a 1951 monograph on _The Cost and Financing of Social Security_, "The Trust Fund is a fiction, serving only to confuse." ("Trust Fund" is the usual misleading name given to those bonds.)
brianbbb also wrote, "YOu put in twice as much, you get twice as much (not exactly but that is the general point). It's not a welfare system."
For someone who retired in, say, 1980, and lived for more than a few years past that, it was, for d*mn sure, a welfare system, in that such retirees had returned to them all of their direct contributions plus their employers' contributions on their behalf plus interest on both within a few years (e.g. 3) of retiring. After those first few years, it was gravy -- i.e. welfare.
For most people who retire now or in the future, the returns are much lower, and many people won't get back what they and their employers put in (plus interest).
Reply to this commentLinkReport AbuseHow dishonest can they get?
There's nothing in the s.s. fund but t-notes. Where do you think the fed gets the money to pay off the notes as they mature? There is no piggy bank - it's all the same fund. S.S. is not a retirement account - it's welfare.
Reply to this commentLinkReport AbuseWhere's the discussion on opening US territory to oil exploration and drilling, nuclear power plants, new refineries, discontinuation of alternative fuels subsidies that rob us of food?
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