“Every penny — every buck we spend, we’re borrowing 41 cents. If you really want to trim the deficit, you have to go to the meat of the matter. Social Security and Medicare are running out of money.” – Former Sen. Alan Simpson (R-WY), Co-Chairman of the Obama Debt Commission (the National Commission on Fiscal Responsibility and Reform) describing their $3.8 trillion budget fix.
“We must pass reforms that solve the financial problems of Social Security once and for all. . . I know that none of these reforms would be easy. But we have to move ahead with courage and honesty, because our children’s retirement security is more important than partisan politics.” – President George W. Bush, State of the Union Address, February 2, 2005
The 2010 election mandate was clear and far different from the past. For 75 years lawmakers bragged about “bringing home the bacon,” but in this election new federal spending was no longer a winning issue. The Chairmen of the Armed Services, Budget and Transportation Committees who promoted new spending were defeated, and other budget busting senior Chairmen retired when they were confronted by angry protesters.
No one knows if a divided Congress will now be able to agree on serious deficit reduction. The incoming Republican House of Representatives will certainly pass legislation calling for major budget cuts, but all of their efforts could well be dead on arrival in either the Democratically controlled Senate or at the White House.
The encouraging part is that both liberals and conservatives say the present fiscal path is unsustainable, and the problem is on the spending rather then the revenue side. This is emphasized by the $1 trillion dollars in interest costs the nation will be paying on the debt by 2020.
In the past, Congress addressed fiscal problems by taking money away from Social Security, and they were effectively kicking the can down the road. In his 2004 debate with Sen. John Kerry (D-MA), President George W. Bush said these tactics had to stop.
After his re-election victory he devoted 18 months to promoting Social Security reforms, and his effort was a tremendous failure. Now many of his proposals have been revived, and for first time some senior Democrats are agreeing that reform is essential.
These liberals heard the mandate loud and clear, and they know the spending has to stop. The Bush reforms are once again being reviewed, and now members of President Obama’s commission are saying these initiatives would make Social Security solvent for the next 75 years.
Several moderate Democrats attempted to reform Social Security, but they made no progress. Former President Bill Clinton spoke of increasing the retirement age. Former Senator John Breaux (D-LA) suggested discouraging early collection of Social Security benefits.
The late Senator Daniel Patrick Moynihan (D-NY) recommended changing the way benefits were calculated. George W. Bush said all of those ideas had merit. He backed them but no Democrats wanted to negotiate. They preferred to have a winning campaign issue. It was a successful tactic, but the problems continued to fester.
“Saving Social Security”
In his 2005 State of the Union Address, Bush was loudly booed and heckled by Congressional Democrats when he said Social Security “is headed toward bankruptcy”:
For younger workers, the Social Security system has serious problems that will grow worse with time. Social Security was created decades ago, for a very different era. In those days, people did not live as long, benefits were much lower, and a half century ago, about 16 workers paid into the system for each person drawing benefits.
Our society has changed in ways the founders of Social Security could not have foreseen. In today’s world, people are living longer and therefore drawing benefits longer. And those benefits are scheduled to rise dramatically over the next few decades.
And instead of 16 workers paying in for every beneficiary, right now it’s only about three workers. And over the next few decades, that number will fall to just two workers per beneficiary. With each passing year, fewer workers are paying ever- higher benefits to an ever-larger number of retirees.
So here is the result: Thirteen years from now, in 2018, Social Security will be paying out more than it takes in. . . By the year 2042, the entire system would be exhausted and bankrupt.
The only difference is that now the Social Security trust fund will run out in 2037 instead of 2042. In his new book Decision Points, Bush describes the inaction on Social Security as his greatest failure. Speaker Pelosi and Senate Majority Leader Harry Reid (D-NV) both dismissed the White House proposals and preferred to do nothing. They said Social Security was sound and there was no need for any significant reforms.
They effectively used Social Security scare tactics to recapture control of the House and Senate in 2006, but all of Bush’s warnings have proven to be prophetic. Now the Debt Commission agrees with many, but not all, of Bush recommendations. The benefit cuts he recommended for upper-income wage earners are included, but private accounts for young people are not.
The vote on the recommendations of President Obama’s Debt Commission is set for December 1st, and the outcome is uncertain. The controversial recommendations would involve considerable pain, and passage requires the approval of 14 of the 18 Commission members.
The Commission set out with a goal of reducing spending to 3 percent of GDP. The recommendations pending before the Commission would bring spending down to 2.2 percent of GDP, but the new gas tax and Pentagon, Medicare and Medicaid reductions are meeting stiff resistance on Capitol Hill.
Liberal lawmakers are saying it is impossible to increase the Social Security retirement age by one year in 2050. This would only impact people who are now 28 or younger, but Democrats will not agree. It was easy for GOP candidates to criticize Obama’s stimulus and other spending proposals, but it is difficult to advocate cuts in Medicare and Medicaid. Many Democrats are certain to campaign again on the “saving Social Security” theme.
What Can Be Cut?
Rep. Paul Ryan (R-WI), the new Chairman of the House Budget Committee, believes the Pentagon is already stretched thin while the Commission ignored numerous savings in the health care area. Simpson says the package will include real tort reform and $500 billion in discretionary budget reductions over the next decade.
The GOP Congress will definitely have additional proposals. The Debt Commission is important because it is seen as the best opportunity to pass spending reductions in the Democratically controlled Senate. Republicans are firmly committed to the extension of all the Bush era tax cuts, but the new Congress will be debating proposals to trim charitable deductions, mortgage-interest deductions, as well as deductions for state and local taxes.
All of these proposals are highly unpopular but advocates emphasize that if they are eliminated, income-tax rates could be brought down to 8 percent, 14 percent, and 23 percent.
Fixing the Deficit: Our Biggest Test
The current issue of Time magazine contains an article by Fareed Zakaria entitled “Fixing the Deficit: Our Biggest Test.” He concludes:
The crucial arena is not the economic realm but the political one. . . will this conversation turn into the usual demagoguery, with each side tearing apart the things they dislike and ensuring that the deficit commission becomes one more sad story about Washington’s inability to grapple with our long-term problems? We’ve seen the political process break down and avoid dealing with immigration reform, energy policy and Social Security. Will we fail again, this time on the biggest test?