RSS Feed MenuDean Baker writes at TPM Café that
Word has it that President Obama intends to appoint a task force the week after next which will be charged with “reforming” Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.
Dean, as some may know, is not a big fan of Social Security reform.
I have no independent knowledge of what an Obama administration task force on Social Security reform would do or look like. It might be modeled after the Clinton administration’s working group on Social Security, headed by Jeff Liebman who has returned to a post at OMB in the Obama administration. (This paper by Liebman, Doug Elmendorf and David Wilcox discusses some of that process.) If the task force is purely internal and aimed only at providing policy recommendations for President Obama, the Clinton administration model isn’t a bad one to follow, and the Obama administration staffers available to work on it – Liebman, Jason Furman, Peter Orszag and others – are clearly up to the job.
If, however, Obama wishes for a task force to build political momentum toward reform, he’ll want a broader group. Based on my experience on the staff of President Bush’s 2001 reform commission and work with the White House on reform in 1995, here are a few quick thoughts:
First, to build any political momentum a working group should represent the reasonable spectrum of views on Social Security. Something like the Diamond-Orszag reform proposal probably represents a reasonable bound on the left, as it retains the current program in pretty much its current form while making it sustainably solvent almost entirely through increased taxes. Something like the President’s Commission’s “Model Two” is a reasonable bound on the right, since it likewise makes the program sustainably solvent entirely by reducing benefits. There are folks on both the left and right whose views make it such that any reform compromise would be almost impossible – on the left, because many believe Social Security doesn’t even face a deficit, and on the right because they believe that simply borrowing a few trillion dollars and investing it in personal accounts will fix the whole problem. Neither view is correct. It may be possible to get some folks further left on board by proposing auto-correction policies that only come into effect to the degree the system faces deficits; I discuss one option in this paper. If they’re right that Social Security doesn’t face any shortfall, nothing will change.
One problem with President Bush’s 2001 Commission was that it didn’t represent the reasonable spectrum of beliefs on Social Security reform. This didn’t make it a dishonest commission; like President Roosevelt’s Committee on Economic Security, it was designed to put flesh on the bones laid out by the President. In this case, the Commission was tasked with designing a reform plan that included personal accounts and excluded tax increases. That said, a commission only builds political capital toward enacting reform if it’s seen as building a consensus through a process in which all views have been heard. In both the 2001 Commission and the later 2005 reform drive, Democrats didn’t feel they were part of the process. They clearly will be a central part of the process this time, but the goal will now be to include Republicans. Just as Republicans shouldn’t reflexively oppose any Obama administration reform plans for political reasons, so Democrats shouldn’t seek to exclude Republicans from the process.
Second, a reform task force should include a variety of different players, including members of government, both legislative and executive, representatives of outside interest groups, and experts who can provide technical advice and help ensure the integrity of the reforms decided upon. The 2001 Bush Commission didn’t include any sitting Members of Congress and only a small fraction of commissioners had the technical expertise needed to make the plans the best they could be. A broader group would be helpful.
Third, any task force or commission needs time. The 2001 Commission ran roughly from May through December of that year and had to conduct a number of public hearings. This was simply too much to do in too little time, and as a result the plans were fairly bare bones. There is plenty else on the policy agenda at the moment, so there’s no reason not to give a working group a year or more to put things together.
Finally, on a non-commission related topic, one comment by Dean is worth noting. He says,
“The vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them.”
While this is a pretty compelling talking point, it really just isn’t so and any reform plans should take the facts into account. The table below from this paper shows that Social Security accounts for around 39 percent of total income for new retirees in 2005. It may be a little higher now, but probably not that much. Moreover, to the degree we want people to have diversified sources of retirement income – and most Democrats at least talk the talk on that – raising taxes to pay higher Social Security benefits will only tend to squeeze out other forms of savings and make tomorrow’s seniors more reliant on Social Security. That can’t be a good thing.
Pragmatist306 // Feb 17, 2009 at 5:14 pm
There certainly is some truth to Bulldoglover100’s claim that the Republican party has turned into a party of liars; especially when considering some of the representatives in the House and Senate.
When it comes to ‘balance’ on the commission, it will all depend on what the right-wing considers balance to be. If past right-wing demands are any indication; it will end up being their way or the highway, again.
That is not the way to try compromising with liberals; it only serves to reinforce the stereotype of conservatives not being open to alternatives, and only being interested in their point of view.
If that is the case, there is no need for Obama to consult with any conservatives because all he needs to do is read the “Heritage Foundation’s” report on Social Security reform. The task force claims to be bi-partisan and to represent liberal as well as conservative views. Any honest person will see that it really is a majority of conservatives and a few token ‘former’ liberals who happen to agree with ’some’ of the conservative views.
Now on the surface, that may seem right to do, but if so, why are conservatives upset when they’re excluded, when they’re more guilty of tokenism then anybody else?
Sure we may not want to hear this, but are we really going to believe Rush Limbaugh on Social Security, without even looking at the merits?
WmLarsen // Feb 18, 2009 at 9:26 am
Many think social security is an earned benefit. What exactly do they mean? To me, this phrase is a righteous euphemism for making the more truthful statement: “We were snookered by this Social Security Ponzi scheme, and now we are going to snooker the next generation!”
If Social Security benefits have been “earned” who is obligated to pay benefits to those who “earned” them? Workers? On a regressive tax basis? Why? Why perpetuate a fraud upon the innocent? Who is responsible for bearing the burden of a fraud? The person defrauded? Or an innocent or unborn child? Social Security is not fair, never was fair and cannot be made fair.
Simply stated, there is no painless solution. With this said, I have put together a proposal that will allow us to extract ourselves, our children and grandchildren from this dreadful mess.
If you want to understand Social Security and how we go to this point, please read this power point presentation.
http://www.justsayno.50megs.com/pdf/social_security.pdf
If you want to be able to see how myths have made this program survive this long, please read this: Myths: The Politcal Tool of Choice
http://www.justsayno.50megs.com/pdf/political-myths.pdf
If you want a plan that will actually work,, please read this:
http://www.justsayno.50megs.com/pdf/larsen_plan.pdf
Attempting to link to these links from this website may be blocked. Simply copy the link to the address bar and you will have no trouble.
http://www.justsayno.50megs.com/ss.html
sinz54 // Feb 18, 2009 at 11:12 am
Whatever Obama does, I hope he doesn’t do it right away. Obama, and the nation, have a pretty full plate right now. Besides, he couldn’t build political consensus for something as long-term as keeping SS solvent, when there are widespread unemployment and business failures right now. I’m surprised Obama even picked up this issue. TPMCafe’s leftists think that was a mistake on his part.
WmLarsen // Feb 18, 2009 at 1:14 pm
Why do you think we are in this economic mess? What changed over the past 72 years? We shifted from paying for our government services in the year they were purchased with borrowing money. SS began with a 2%payroll tax, entirely inadequate and was known in 1943. The recomendation by Altmyer was to increase the tax to 8%, but that did not happen. In fact the tax never reacheed 8% until 1968. Too late to really help SS.
If anyone truly wants to save social security, I would like to know what YOU are willing to contribute to do so? To make SS-OASI solvent, meaining no new tax increases, no changes in retirement age and no changes to benefit formula, then SS-OASI needs $21 Trillion in the bank earning 5.5% a year. Oh, wait, 5.5% is a bit tough with the treasury rate at 0.25%
This then leads to the fact that future initial benfeits are growing at the rate of changes in the US average wage, which is higher than the US Treasury rate. This means that the rate of growth in future SS-OASI benefits are growing faster than the US Treasury can keep up with.
No different than a person earning a lower rate than inflation. It is a mathematical divergent series.
Now if you think everyone over age 18 and not retires is willing to contribute about $105,000 right now to fund their share of the unfunded liability of SS-OASI, then we can save social security. If we do not do it this year, add another 5.5% to the tab next year.
Instead of trying to save social security, the first question should be “can social security be saved and should it?”
lucas // Feb 18, 2009 at 7:21 pm
i am not intimately familiar with SSN financing (virtually no one else who comments on it is). But it seems to me there are two camps: 1. says SSN is insolvent, 2. says SSN is not insolvent. If 2 is correct, we don’t need to worry about it for a while. If number 1 is correct, they believe it is insolvent because the ratio of retirees to workers is moving towards all time high level because of low birth rates among boomers. Do I have that right? Can’t we easily fix that ratio (neither reducing benefits nor increasing taxes) by having an initiative to greatly increase talented, educated, legal immigration?
agbiggs // Feb 19, 2009 at 10:49 am
Lucas,
Social Security isn’t currently insolvent, because the Baby Boomers are still mostly in the workforce and in their peak earnings years. But as they shift to retirement the program will start running deficits (in around 2017) and then run down the trust fund balance by the early 2040s (it’s arguable how economically meaningful the trust fund is, but it has legal significance). You’re right that we could increase immigration to keep a favorable worker-beneficiary ratio, which is the key for pay-as-you-go programs, but the numbers of immigrants needed would be extremely high. I’m skeptical about forming immigration policy, which has huge effects on other parts of society and the government, based on the needs of just one program. But others may differ.
WmLarsen // Feb 21, 2009 at 8:46 am
agbiggs, I totally disagree with you on the solvency of Social Security. Its present value of liabilities exceed its present value in the trust fund by 10 times. This means it will take ever higher taxes for the same benefit; same taxes for much lower benefits or much higher retirement age for the same benefit thus killing off 1/3 of those who would have lived long enough to collect some benefits while paying more taxes. The SSA has sent statements for the past eleven years saying they can only pay 73 to 75% of promised benefits. Keep in mind these benefits are without COLA due to legislation passed in 1984 eliminating COLA when the trust fund balance falls below 20% of any given years expenses.
When did Enron go bankrupt? Did it go bankrupt when it filed for bankruptcy or months earlier when it cooked the books? Take the Maddoff ponzi scheme where he never bought a single investment, when did that fund go bankrupt, the day it started or when people found out they lost it all?
We are kidding ourselves if we believe SS-OASI is solvent. It is not going broke, it is broke. If it were not true, this discussion would not be taking place.