Friday, March 18, 2011

Harry Reid: "Leave Social Security Alone"

Harry Reid says he will not touch Social Security for 20 years. If we wait until 2030, benefits will have to be reduced by a quarter. For all the Democrats talk about agreeing that entitlement reform is necessary, the only point I have heard them bring up is raising taxes. Even if we confiscate all the wealth from every single person in America, we would STILL not be able to fund entitlements in the long run. It is impossible to keep them in their current forms. As far as I can tell, the Republicans are the ones putting out the serious reforms, while Democrats are pointing to the ACA as "seriously reforming Medicare" and pushing for raising taxes. The ACA and increased revenue alone will not be a solution to our problems. I say take out all the corporate and individual tax loopholes (even the ones Dems like- like renewable energy tax credits, but leave the EITC and other tax credits for low income individuals and we would probably have to keep the employer sponsored health care tax preference as it is a huge part of the ACA, but it is worth noting that this is the most expensive tax expenditure so when Dems point out HUGE tax expenditures this is the biggest one), lower taxes while still raising revenue (this is possible if loopholes are taken out), and reform entitlements in a way that will seriously cut spending. People will argue that this will shift the cost to the most vulnerable citizens, but a financial crisis would be way more devastating to the poor and working poor than serious entitlement reform. I'm ready to fight on this one Patrick.


Megan said...

Where is everyone?

Patrick_Landers said...

I'm coming, I'm coming- I'm just really busy at work today. I have about 2.5 Word pages done in response (aka 3 long comments), but I prefer to say all my arguments at once. Hopefully by 7 p.m. I'll post, though it might have to wait until later tonight.

Don't fret ;)

Patrick_Landers said...

whoops- should've done more work work instead of this, but I couldn't resist- this is more fun.

Haha Megan, I’ll try to keep my response short (which I failed at- per usual). I probably agree with you more than it will appear in what I say, but I’m just trying to highlight differences and other people’s opinions and policy positions. Sorry that I explain things I know you already know- it just makes it easier for the logical development of my arguments.

First, I think Reid is genuinely serious in that he doesn’t want to do Social Security reform as part of deficit reduction. I’m sure he wants the SS system reformed, he just wants it to be a separate debate (because he’s worried about what the reforms would be in the current political climate). The 20-year claim is not serious- its incendiary rhetoric designed to signal Republicans just how serious he (and much of the Senate and Democratic Party) is that Social Security can’t be severely impacted as part of deficit reduction (through benefit cuts). He is setting up his negotiating position in order to strengthen his hand in negotiation with Boehner & Co.- he needs to make Social Security changes seem near impossible for Senate D’s to accept, therefore when they do accept them the Republicans will have to put forward reciprocal concessions (tax revenue increases, no defunding of health care reform, etc.) Do you notice that Republicans aren’t saying they’ll accept revenue increases, even though every centrist or nonpartisan budget expert agrees that revenue increases will be needed if there’s to be any significant deficit reduction deal. Why? Because they’ll have to break their pledges with Grover Norquist, and they’ll have to go against their radical base which will then spend months attacking them. Democrats are similarly beholden Social Security, because the party is partly based on defending FDR’s New Deal which rests on Social Security. If there is any movement on these critical (respectively for the parties) issues, it’ll have to happen pretty quickly and simultaneously (both parties sacrificing) in order to generate enough political cover for these compromises. Politicians are going to have to implement DECADES of delayed pain in a relatively short period of time- which is inevitably going to create a huge political backlash. So as the senior Democratic leader (since Obama will inevitably be pushed/place himself into the role of mediator/centrist), Reid is fulfilling his necessary political and American political structure role with his rhetoric about being willing to wait 20 years, taking a hard initial line in negotiations in order to strengthen his hand and get better policy outcomes according to his policy beliefs. No one should take the 20-year claim seriously.

Patrick_Landers said...

2) The thing is, Reid’s position on Social Security is actually less hard-line than the Republican position on taxes, if you’re seriously focused on enacting deficit reduction in the next few years (which is the thing economists think is important, because our debt levels are already so high). No reform proposal ever suggests cutting benefits for current beneficiaries because people made decisions based on the expectation of receiving a certain level of benefits. Any changes we make will only have a very gradual effect based on the changes only applying to those people entering the system (anyone under the age of 66/7ish when the changes are approved). Of course, nearly every Social Security reform plan ever conceived is usually based on the principal of not changing the benefit formulas for anyone over the age of 55, because they would have inadequate time to prepare, since they were anticipating a set of benefits. So that further slows the impact of Social Security reforms.

Social Security reform should be done sooner rather than later in order to make easier the policy changes necessary to ensure long-term solvency- but that solvency issue isn’t a problem until 2037 (with that date potentially being an overestimate or an underestimation). Basically what Social Security reform does is it changes the expenditures and revenues streams of the program gradually to push back the Social Security insolvency date until eventually it’s outside the 75-year window actuaries consider (aka it’s viable/sustainable for as long as the eye can see).

Sorry if this is confusing, maybe that sentence makes more sense when put into example form. Right now it’s 2011, and the Social Security program is projected to reach insolvency in 2037- 26 years from now. Let’s say we reform the system somehow. In 2016 the date when benefits would have to be instantly cut would be… let’s say 2046 (30 years away for the then present-day of 2016). Then in 2025 the insolvency date might be 2075 (50 years away from the then present-day). The rate at which the program’s length of viability (26 years in 2011, 30 years in 2016, and 50 years in 2025 under this hypothetical scenario) is increasing, but it starts slow because it takes awhile for policy changes to have an impact. It’s better to start now when we have more options and changes don’t have to be so radical, but any Social Security reform is not going to significantly affect our unified budget deficits (aka gross debt level) significantly for many, many years.

But economists tell us we can’t wait many, many years on controlling our debt. We need to make big changes soon- Social Security can (and should) play a role in that, but it’s not going to be a significant contributor. However, taxes are going to have to play a major role in short/near-term deficit reduction (next decade or two)- it’s the only way to get the numbers to work taking into consideration political factors (namely the impacts on the American people and their response) according to any expert on the center-right, center, and left ends of the political spectrum (who just degree about the respective composition). Even Cato only WANTS deficit reduction to be done through spending cuts alone; I doubt even they think it’s going to happen.

Patrick_Landers said...

Also, think about how we’d reform Social Security. There are two ways- reducing expenditures (changing benefit distribution formulas, changing how benefits grow over time- the COLA’s, controlling for inflation, etc., changing incentives for retiring early or later, increasing the retirement age, etc.) and increasing dedicated revenues (payroll taxes that go into the Social Security trust fund- you do this by increasing the tax rate or the amount of income taxed, since there’s a cap on how much income payroll taxes can apply to). You’ll remember from yesterday’s hearing that the conservative Social Security witness Chuck Blahous (as would be agreed to by all experts) said Social Security reform, if started now, could be done through either just benefit changes or just revenue increases (with some combination also being possible). Any reform proposal that could be enacted (and generally is proposed by experts, including conservative ones), uses some balance of benefit changes and revenue increases.

However, oftentimes the benefit changes are primarily done by allowing the age you can receive benefits to increase over time (have to be 68 in 2050, 69 in 2075 as a hypothetical example) and decreasing the formula for year-to-year benefit increases (Social Security benefits are adjusted for inflation and a number of other factors currently- reforms would lower or alter those formulas so benefits grow less rapidly over time). Either way, all of the ways to significantly cut costs (which is only one part of Social Security reform) grow stronger over time but have minimal short-term impact. On the other hand, revenue increases are generally applied immediately, so that if you looked at all the savings in the Social Security program and allocated them to either revenue increases or benefit changes, you’d find that the revenue increases are front-loaded.

Once again, I’m just trying to show that Social Security reform, even if it’s done in a solidly Republican way drawing some moderate Democrats, is going to be reliant on tax increases in the short/near-term. Yet Republicans refuse to accept this. I’d argue it’s a bigger sin than Democrats wanting to avoid discussing Social Security reform, because the need and role for revenue increases is so much greater than for Social Security. However, I understand that Republicans would be committing suicide if they agreed publicly that they will INCREASE TAXES. Just look at what the Senate Republicans as part of the “Gang of Six” negotiations have been going through over the mere possibility of agreeing to tax increases:

Relevant quote from a CBPP paper: “The long-term gap between Social Security’s projected income and promised benefits is estimated at 0.7 percent of gross domestic product (GDP) over the next 75 years (and 1.4 percent of GDP in 2084). By coincidence, that roughly matches the revenue loss over the next 75 years from extending the Bush tax cuts for people making over $250,000. Members of Congress cannot simultaneously claim that the tax cuts for the richest 2 percent of Americans are affordable while the Social Security shortfall constitutes a dire fiscal threat. A mix of tax increases and modest benefit reductions — carefully crafted to shield the neediest recipients and give ample notice to all participants — could put the program on a sound financial footing indefinitely.”

Patrick_Landers said...

3) Don’t forget that Social Security is a relatively minor concern compared to Medicare and Medicaid, which are merely growing at the rate of system-wide health expenditures. But as you heard Thursday, conservatives have their preferred counterarguments. I just think they’re wrong- but you might not- which is fine.

4) The Republicans are the only ones putting forth serious reform ideas? I’m assuming you are talking about the House Republicans, and in particular your crush Paul Ryan? The same guy, who along with the other two House Republican representatives on the President’s Fiscal Commission, voted against the proposal that would have had $4 trillion in deficit reduction in the first decade and would have gotten spending-to-GDP ratios down to 21%? (the last figure in particular is unlikely to happen). If the three of them had voted for it, it would have had to come up before a vote from Congress- which could have agreed to it and ended the whole debate then and there. So there’s one reform idea they squelched. Similarly, the serious reform ideas are just bargaining tools- the real action is in the Senate where you’ll have to get a bipartisan mix (at the expense of both party extremes) for any serious reforms and deficit reduction. It doesn’t matter what can pass the House- it’s what can pass the Senate. Ryan’s proposals are just designed to show how Republicans are “serious” and committed to massive changes, primarily through massively cutting government spending (and possibly proposing more tax cuts- that’s still an option they’d consider). We’ll just have to wait and see, but it’s all rhetoric and bargaining positions, just like Democrats on Social Security and taxes. It’s important for both parties to maximize their hand and set themselves up well. It’s all about politics right now (in my opinion), not policy.

5) You said “we would probably have to keep the employer sponsored health care tax preference as it is a huge part of the ACA.” I disagree. Obama and many Democrats, based on the advice of nearly all economists, initially attempted in health care reform to phase out. Unfortunately, there many formerly-conservative ideas failed to attract any Republican support so Obama realized he needed the entire Democratic coalition to pass health care reform. This was a problem because labor-allied Democrats don’t like removing this tax exclusion because it favors workers with more expensive benefit packages, which includes many union members since unions for years have concentrated on negotiating strong benefits packages. To pass reform, cost-concerned experts and Democrats had to settle for the “Cadillac Tax,” which is still one of the most important long-term cost-curve benders of the current- but is not as powerful as completely repealing the tax exclusion of employer-provided health insurance. This is an example of a very expensive tax expenditure that disproportionately favors wealthier Americans and creates bad economic incentives that distort the costs of American health care. Of all the tax expenditures to tackle, this is the most important one. It would be so great if both parties’ moderates could agree to change this provision, but it’s made difficult because some Democrats are too dependent on labor, and because some Republicans realize that changing this provision would actually strengthen health reform.

Patrick_Landers said...

6) I agree with you on reforming the tax system to lower rates and increase revenues. I agree with you on reforming entitlements to cut costs (we’re probably pretty similar in views on Social Security, I’m more centrist on that than even many centrist Democrats, though I doubt my policy views would put me on the right-end of the spectrum for the issue). When you said “People will argue that this will shift the cost to the most vulnerable citizens, but a financial crisis would be way more devastating to the poor and working poor than serious entitlement reform,” I couldn’t agree more.

7) The catch- let’s reform Medicare and Medicaid in the best way possible... Moving full speed ahead with the Affordable Care Act by massively expanding and empowering every cost-control idea. I’ll throw in tort reform for you in return ;) Here’s the point where the right and left really diverges on a key cost-control, deficit-reduction area.

PBM said...

I haven't had time to read all of Patrick's reply but I will give you my gut reaction now.

I think most budget experts agree that medicare and medicaid are our biggest fiscal problem. Social Security has some problems but will be mostly solvent until 2037 I think. In addition, poll after poll has shown that reforming social security in a way that reduces benefits is highly unpopular. I know that Americans have some pretty contradictory views and it's not always best for the country to listen to a bipolar public, but I still think it's worth considering when you talk about means of of deficit reduction. Also, a recent politico article talked about how the White House was struggling to decide whether it wants to support reforming social security or not. While you can't see it in public, there is definitely a debate within the party over the issue. I even support some sort of reform. Some Dems want reform now so they can reform it in a more acceptable way than the GOP might on their own (if it isn't resolved and GOP gets back into total power).

Now to your "Dems just want to raise taxes and not seriously reduce spending." First, let's look at the "not seriously reduce spending." Again, a lot of Dems are looking at Social Security reform. They are also looking at Medicare/medicaid reform. These are the major drivers of spending, and most important to take on. Yes, there are some who are against touching both, but I don't think that would be the mainstream Dem view right now

Now, to your "Dems are not seriously reducing spending." As a House Republican said in politico the other day, "I never could have thought of another time where I'd be called a liberal for JUST wanting to cut $6 billion in 3 weeks." So Dems are actually behind some decent size cuts. They are nothing compared to the debt, but they are still very large historically.

Now, I think a more accurate and important argument is not that "Dems wont touch social security," but that Republicans won't touch taxes. They have to be a part of the solution. Yes, government is bloated and we spend a ton on entitlements, but tax raises have to be a part of the equation. Federal taxes have been the lowest they have been in 50 years. Individuals have the lowest rates they have since then, and large corporations pay very low effective tax rates (I also support tax reform, but think it could raise revenue to reduce the debt). We shouldn't do this in the middle of the recession, but we can plan it for the future when we are growing more rapidly. It has to be a part of the solution. Not the only part, but it has to be a part.

TJE said...

Does this mean that we have twenty more years of our long national nightmare?