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Why Can’t We All Just Get Along in Terms of Dealing with the Fiscal Outlook?

January 18th, 2010 . by economistmom

This week the Senate will be debating an increase in the federal debt limit, necessary because before Congress recessed for the holidays, they had passed an increase that bought them only a couple more months. What makes this week’s consideration of the debt limit more interesting is the potential for amendments that would attempt to inject more discipline into the budget process just as the budget constraint is (again) being relaxed.

One such amendment would create a deficit-reduction panel (or “task force” or don’t-dare-say “commission”).  The problem with that idea?  As Jackie Calmes wrote last week in the New York Times, even policymakers who want to do something to reduce the deficit in the name of “fiscal responsibility” don’t always want to work on (all of) the specific ways to reduce the deficit:

…the same partisan divisions that keep elected officials from cutting spending and raising taxes enough to rein in deficits are also at play in the debate over a panel to make those decisions and force action.

The Senate Republican leader, Mitch McConnell of Kentucky, has said tax increases should not be an option, while some Democrats see a budget panel as a threat to Medicare, Medicaid and Social Security.

“A claim that any of those items should be off the table is a claim that you really don’t want to do anything about the problem,” Mr. Gregg said. “You can’t resolve the out-year financial problems of this country, which are massive, unless you have everything on the table.”

The Senate has been far more receptive to the commission concept than the House; witness their different health reform bills, with only the Senate’s specifying the “independent payment advisory board.”  The House has generally opposed the idea because they believe it would take too much power away from Congress.  (Sadly, that is the point.)

Another possible amendment would consider a statutory pay-as-you-go (PAYGO) rule on new (mandatory) spending or tax cuts.  The House already passed a version of this last year, but the Senate has generally been cold to PAYGO for a diversity of reasons: Senate Republicans don’t like having to pay for tax cuts and think that the House’s exemption of the bulk of the Bush tax cuts plus AMT relief isn’t “blanket-enough” of an exemption, and Senator Conrad has argued that the exemption is too generous to allow PAYGO to make enough of a difference.

So the Senate and the House haven’t been able to agree on the right form of fiscal discipline to pair with the debt limit increase; they all just agree we have to increase the debt limit.

Meanwhile, advocacy groups are mobilizing this week to pitch their cases for or against the debt-limit increase (and these associated amendments) to Congress, and there’s clear disagreement here, too.  In this case the groups seem to divide not so much by political party as by generation.  On the one hand, you have young “Millennials” holding a rally on Wednesday calling on Congress to get more serious about fiscal responsibility, and their positions include supporting the idea of a fiscal commission.  On the other hand, you have “elderbloggers” (their label, not mine) organizing a “call-in day” in opposition to the Senate’s consideration of a fiscal commission.  I find it unfortunate to see this form of (what at least feels like) “intergenerational warfare,” because I truly believe that the different generations share common–not mutually exclusive–goals.  (We all have (or had) parents, and many of us have children–and we care about them.)  But labels and hyped-up reactions to labels unfortunately have a way of encouraging false conflict.

More later this week as the drama unfolds.

19 Responses to “Why Can’t We All Just Get Along in Terms of Dealing with the Fiscal Outlook?”

  1. comment number 1 by: SteveinCH

    Diane,

    I engaged in a discussion about this with my in-laws and my parents (all SS and Medicare eligible) over the holidays. It was quite interesting.

    Basically, they all agreed that “at some point” the rules about SS and Medicare will need to change. They also believe that they “paid in” and are now “due” the benefits they were promised. It’s quite interesting, even though all of them agree that both programs are pay as you go, they still feel entitled to a benefit based on their age alone.

  2. comment number 2 by: Ronni Bennett

    Social Security is financially stable for decades. Medicare is being addressed with health care reform.

    No elders are engaging in generational politics. If anything, we understand how important Social Security and Medicare are for future generations. Our work is to preserve these programs for our children and grandchildren.

    It is not just “elderbloggers” (what is it you think is wrong with this term?) who are participating in Call In Day. Many larger intergenerational organizations are spearheading this effort.

  3. comment number 3 by: Underwriterguy

    Some of us “seniors” (it was just yesterday that I would never trust anyone over 30) recognize the need to reform, in the true sense of the word, Social Security and Medicare. Income adjusting SS would be the reasonable beginning, but wouldn’t that break the social compact and reveal SS as merely another form of welfare?

  4. comment number 4 by: SteveinCH

    But it is. That’s the point.

  5. comment number 5 by: SteveinCH

    Ronni,

    It’s not a question of financial security but of equity. I don’t understand why we tax people from dollar one of their income to give to people with more wealth. It defies common sense in my view.

    To be honest, I don’t really understand on first principles why SS and Medicare should exist. We have programs designed to support those who cannot support themselves. Why should we support people who can support themselves financially solely because of their age?

    On the issue of financial security however, I think the programs are in very different places. SS is arguably solvent, though dependent on turning trust fund bonds into dollars to sustain solvency. Medicare is a trainwreck financially and nothing in the current HCR proposals is going to fix it.

  6. comment number 6 by: Carol Scott

    Diane,
    You wrote:

    “I truly believe that the different generations share common–not mutually exclusive–goals.”

    This is so true, and the fundamental belief of Generations United, the nonprofit that works to improve the lives of children, youth and older adults through intergenerational solutions and policies. Social Security pays more benefits to children than any other federal program, and any policy change needs to keep in mind that the generations are connected. Donna Butts, GU’s Executive Director, explained this in an op-ed in yesterday’s Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2010/01/15/AR2010011503179.html?hpid=opinionsbox1

    For more on Social Security’s benefits to children and families, visit our newly-released Social Security Fact Sheet: (http://gu.org/socialsecurity.asp).

    Today’s call-in is sponsored by many national organizations and spans all generations, including Generations United.

  7. comment number 7 by: SteveinCH

    Carol,

    Connecting stories about the wonders of intergenerational households and the love, support and growth that can come from them has little to do with governmental forcing of intergenerational wealth transfer from the young to the old.

    The fact that SS pays benefits to children is great but the bulk of the benefits go to seniors. Please have a look at http://www.socialsecurity.gov/policy/docs/chartbooks/fast_facts/2009/fast_facts09.html. It shows that only 6% of OASDI recipients (the bulk of the payments) are under the age of 18.

    There is a great difference between supporting intergenerational harmony and using the government to subsidize intergenerational wealth transfer.

  8. comment number 8 by: Jim Glass

    “Income adjusting SS would be the reasonable beginning, but wouldn’t that break the social compact”?

    Compact? It’s a curious thing, that “compact”.

    FDR created a SS system that was explicitly inter-generationally neutral — FDR insisted on that. Each generation of workers received the federal bond rate on its own contributions. Each took nothing from the next generation. The system had specified tax rates and benefits schedules producing that result.

    It was long-term balanced and in FDR’s notable words: “Actuarially sound and out of the Treasury forever”.

    Wasn’t that the *original* intergenerational “compact”?

    Then something strange happened. In the early 1940s — over FDR’s veto! — Congress started increasing benefits rapidly up-and-up to retirees without increasing taxes to finance them. That gave current retirees far more than they put in, and by arithmetic forced a massive transfer from young to old that the young can never get back when they grow old , since to close that gap the young’s future taxes have to go way up and their benefits must be slashed (the first major leg of which happened in 1983).

    Did not THAT violate the intergenerational compact?

    Strangely, it seems, no!

    Can we change the original promised tax rates? Sure, no problem. Change the promised benefits — as long as it is up? Sure! Create a massive intergenerational transfer that FDR explicitly detested and removed from the original SS program? Absolutely OK!

    But after you do all that — and you go unsustainably too far in doing so — can you then reduce the benefits somewhat … even if only by means testing the rich out?

    Yikes, NO! Because that violates the compact!

    Now another odd thing is that a “compact”, by definition, needs at least two separate parties agreeing to it. And I think most anyone will admit that the terms of the purported “compact” above are a pretty raw deal for the younger generation. So who negotiated for the younger generation and agreed to those terms?? I want to talk to him!

    Hmmm again … looks like nobody. The whole process was, of course, simply the legislature repeatedly giving ever more benefits to current voters and dropping the cost on the future — just like they always do. Nobody negotiated on behalf of the younger in creating any “compact”.

    So could it be that invoking “intergenerational compact!” so selectively regarding the terms of entitlement programs — only in regard to any reduction of benefits, no matter how justified, never in regard to changing any other term of the program — is nothing but a rhetorical ploy?

    Nothing but a more politically effective way of saying the plain, “I’m getting mine, no matter how much it costs you”? Which in political discourse would appear rather unattractively … greedy.

    You decide.

  9. comment number 9 by: Jim Glass

    Social Security pays more benefits to children than any other federal program

    Ah, at last. Social Security is for the children!

    The WaPo had a hilarious editorial a few years back about how every special interest group living off Washington that starts to feel the heat reacts by selling itself as being “for the children”. :-)

    I’ll see if I can find it in my files.

    any policy change needs to keep in mind that the generations are connected.

    Well, of course they are.

    The generations of retirees up until now have received from Social Security $16 trillion of benefits more than they put in.

    The generations of workers from today on are paying that amount, getting back from Social Security $16 trillion less than they put in.

    That’s a $32 trillion swing as the young — yes, “the children”! — pay a lifetime $16 trillion subsidy to the old that they will never get back but have to eat as a lifetime reduction in wealth. Some connection!

    Donna Butts, GU’s Executive Director, explained this…

    Ms. Butts’ explanation for some reason didn’t mention that most fundamental “$32 trillion swing” connection between the generations. Perhaps she will at some point in the future, and then address the quote she invokes….

    “Life’s most persistent and urgent question is, ‘What are you doing for others?’

    … to the older generation of those “receiving” so much, and ask them what they can do for the younger who are paying so much?

    Specifically, just how do they (and she) propose to relieve this $16 trillion of loss imposed on today’s and future workers?

    Note that increasing taxes to pay the younger more benefits does zip nothing, because the tax increase needed to pay for the benefits would land on them too. And you can’t very well tax them out of a shortfall.

    The only way — insufficient, but a start — would be to cut benefits to today’s rich, from Warren Buffett and Bill Gates down through all the boomers using their benefits to pay for sailing their yachts. Via means testing.

    That could certainly reduce the shortfall to the young. And it would also stop today’s poor from subsidizing today’s rich — e.g., Buffett’s employees at Dairy Queen paying for his entitlement benefits — as they do in a very large way now.

    Really, what could be a more progressive thing to do?

    And it would give today’s older something to really feel good about … as they contemplated how they’d helped many millions of “others” — children! — on a lifetime basis!

    Of course, if Ms Butts has any other ideas about reducing the $16 trillion loss to the young she so cares about, please provide.

  10. comment number 10 by: Jim Glass

    Social Security is financially stable for decades.

    Social Security is $16 trillion underfunded. That’s not counting the near 15% across the board income tax increase — 1.8 points of GDP annually — that will be needed by 2030 to service the trust fund.

    So by “financially stable for decades” you mean: “You can soon start paying the largest income tax increase since WWII — three times the famous Clinton tax increase — just to pay my Social Security benefits for a couple decades, kids, and then your benefits collapse.”

    Medicare is being addressed with health care reform.

    How? Oh, that’s right, by cutting provider payments 20% next year without cutting services. :-)

    And by following the advice of special expert cost-efficiency commissions on medical services — exactly like Congress just did with the recent one on eliminating excessive mammograms! :-)

    Oooops.

    No elders are engaging in generational politics

    Of course not. And they never did!

    we understand how important Social Security and Medicare are for future generations. Our work is to preserve these programs for our children and grandchildren.

    By “preserve these programs”, you mean: convert them from ones that gave you and prior retirees $16 trillion more than you put into Social Security, to ones that give your children and grandchildren $16 trillion less than they will put to it. (God alone knows what the number will be for Medicare).

    That’s a $32 trillion swing in welfare for the worse for the younger, compared to what the older got and are getting.

    That seems a rather odd definition of “preserving a program”.

    Here’s an honest question for you to answer:

    Suppose Social Security had left your generation and your parents’ generations $16 trillion poorer rather than $16 trillion richer — reduced your and their welfare by a good $32 trillion, compared to what you actually experienced.

    Would you be as fond of Social Security as you are today?

    Or would your parents and you never have allowed the politicians to impose such a program that made you all so much poorer?

    Whatever your answer is … that’s the future of Social Security.

  11. comment number 11 by: Underwriterguy

    Jim, I’m concerned for your blood pressure. If it relieves it at least in part, note that I am in favor of means testing, and I do believe SS is welfare. But in all candor, I do accept a check every month.

  12. comment number 12 by: Brooks

    Over at Capital Gains and Games Stan has yet another post ridiculing the idea of a budget commission http://capitalgainsandgames.com/blog/stan-collender/1414/greenspan-commission-failed using a recent piece in yesterday’s NYT as his springboard http://www.nytimes.com/2010/01/19/us/politics/19commission.html?scp=1&sq=The%20Bipartisan%20Panel&st=cse .

    I submitted the comment below over there, but it probably won’t get posted since apparently Stan now discards (rather than posting) comments with opposing arguments and views (Stan and/or Bruce, that is, but I would assume Bruce, as a relative newcomer, would only do so with Stan’s agreement). I guess it’s a lot easier to make yourself look smart and your arguments look strong if you refuse to post counter-arguments/refutations.

    Here is my comment regarding Stan’s implications and those of the writer of that NYT piece:

    It is invalid dichotomous thinking to view the choice as between “expecting miracles from another Greenspan Commission” or foregoing a budget commission. A rational approach to deciding whether or not such a commission is worth establishing would consider the potential benefits and costs and their respective probabilities, and if the “expected value were positive” and the potential opportunity costs and explicit costs negligible, it would be worth doing. As I’ve explained previously, such is the case with a budget commission along the lines of the SAFE Commission proposals today, even the very imperfect “task force” proposed recently by Gregg and Conrad (unless the opportunity cost is the loss of a good chance at a stronger version of such a commission, which isn’t the argument against the commission that I’ve see by Stan or Bruce).

    As for the reading of the impact — or supposed lack thereof — of the Greenspan commission, one possibility that seems to be overlooked here is the possibility that, even if a side deal was necessary, it’s possible that that deal would have been less likely to occur if there hadn’t been that commission, perhaps because the key players in the deal knew that they and others would benefit from some political cover via the blessing of the commission and/or perhaps because such a deal became more likely once it became apparent that (even) a commission approach (alone) was unlikely to succeed in reaching a deal.

  13. comment number 13 by: Brooks

    Re: Social Security is financially stable for decades.

    The statement itself makes no conceptual sense except as an administrative and political matter. The “solvency” of Social Security is merely a function of internal bookkeeping within overall revenues and overall spending. It has nothing to do with any measurement of the degree to which Social Security contributes to our overall long-term fiscal imbalance, nor is it a rational basis for deciding how much to spend on Social Security in the future.

  14. comment number 14 by: Brooks

    Re: Social Security is $16 trillion underfunded.

    Jim, you know this issue very well, and I wish you wouldn’t feed the conceptual confusion over Social Security “solvency” and “gap” with statements like that. You know it makes no conceptual sense to speak of Social Security being “underfunded” (except as an administrative or political matter) other than to say either (1) that ALL future Social Security spending is “unfunded” (since there is no cash in the “trust funds” nor any other assets other than claims against future taxes) or (2) that projected Social Security spending is part of overall projected spending, and the latter is “underfunded” by the size of projected deficits.

    I realize you may be just trying to work within the constraints of the conceptual confusion others have (rather than fighting it) to make points that are perhaps still worth making, but I personally think it’s best at least to include a note regarding the nonsensical nature of thinking of Social Security policy choices and rationales in terms of how “underfunded” the program is.

  15. comment number 15 by: SteveinCH

    Of the two options you offer Brooks, I strongly favor option 1. Bonds in the trust fund are worth nothing since they need to be converted into dollars in order to pay benefits. The conversion into dollars either requires inflation or increased revenues, both of which are taxes.

    All of which in my view is beside the point. The actual issue with Social Security is not the revenue picture but the benefit picture. We have a massive expansion in constant dollars in payments per beneficiary over the life of the program with continued increases in the future. One must solve that problem to solve the larger issues with entitlements.

    In the end, we need to have a conversation as a nation whether we favor transfer payments from the young to the old as a systemic matter. Stripping away the trappings, that’s what Medicare and Social Security are. If we want to have that approach as a nation, we need to have an open and honest discussion about what we are doing.

  16. comment number 16 by: SteveinCH

    Brooks,

    My reading suggests that any commission is likely to be a nonbinding executive branch affair. I think this takes the probability of impact down…doesn’t change the argument but gives me much less hope for any positive outcome.

  17. comment number 17 by: Brooks

    Steve,

    Yeah, I’ve read at least one report that the votes aren’t there for a congressional commission, but that the White House is looking at setting something up, and I agree that an executive branch (only) approach is probably inferior. Also the latest version from Gregg-Conrad seems inferior to other versions of the SAFE commission due to the required supermajorities in the commission and in the House for passage, the inability to amend (I think allowing Congress to amend in ways that are neutral re: fiscal imbalance would probably be better), and the fact that the commission would be full of politicians. But any port in a storm (or in this case, a coming storm). It’s not that I think there’s a great chance that any such commission would lead to passage and implementation of some bold “Grand Compromise” that solves the problem of our long-term fiscal imbalance, just that the costs (explicit and opportunity costs) are negligible and would be far exceeded by the benefits if the commission has the direct or indirect effect of getting us to any degree of fiscal responsibility sooner than otherwise. And in addition to some possibility of passing some useful legislation recommended by a commission, there are ways the commission can have that aforementioned indirect effect even if it didn’t produce a recommendation that became law.

    Despite my elaborations on these points, Stan at CG&G continues to ridicule the general concept on the irrational basis (even if the premise is valid) that it is unlikely to lead to passage of monumental legislation. I guess his poor argumentation is why he apparently feels the need to block my comments, as lame as such a practice is. (By the way, after emailing Stan twice, and after their Tech guy Troy inquired a couple of weeks ago, still no word from Stan on whether or not he is blocking/discarding comments of mine. I guess the only thing lamer than doing so is refusing to take two seconds to at least respond “yes”. I’ll continue to seek an answer, but it’s getting harder and harder to give him the benefit of the doubt.)

  18. comment number 18 by: Jim Glass

    Jim … You know it makes no conceptual sense to speak of Social Security being “underfunded”

    Brooks: Social Security is not just a government spending program like agricultural subsides, defense, Medicare or whatever.

    It is a defined benefit pension plan and it makes perfect sense to compute its funding status — exactly as with the pension plans of General Motors, IBM, the Teamsters’ multi-employer plan, and your state and local community pension plans.

    [being] that ALL future Social Security spending is “unfunded” (since there is no cash in the “trust funds”…

    The trust fund is a near triviality that draws far more attention than it deserves. The dominating factor is the contribution-to-benefit ratio which, as with all defined benefit pension plans, is a set formula defining the benefit promised to participants relative to what they pay in.

    If you think it makes no conceptual sense to speak of the pension underfunding of GM, your union’s pension, your local government’s pension plans, etc., OK — but we know what the GM underfunding contributed to, and NYC treating its employee pensions as a current expense it just wrote a check to cover every month was one of the primary things that delivered it into bankruptcy in the 1970s.

    All I can say is that the FASB and GASB, which sets these accounting standards for pensions, disagrees with you.

  19. comment number 19 by: Jim Glass

    Jim, I’m concerned for your blood pressure.

    So am I. But I take my medication and have my family hide my gun.

    If it relieves it at least in part, note that I am in favor of means testing

    Well, we can be friends. :-)

    and I do believe SS is welfare.

    Oh, I don’t believe that. It certainly wasn’t designed by FDR as that.

    I just believe that, given the size of the shortfall that’s now been built into it, that unavoidable cost should fall on those most able to pay it, in the manner that’s least costly overall. And the way to accomplish that is means testing.

    It’s both the “progressive” and the “fiscally responsible” thing to do, so both liberals and conservatives should be able to agree to it.

    And I believe inevitably they will, when push comes to shove and the time for mere posturing ends. (They already started us down this course in 1983.)

    But in all candor, I do accept a check every month.

    And I certainly hope to. But I’m scheduled to do so during the period when S&P projects the credit rating of the US to be falling to “junk”. So… @#$%!

    Where are my pills?

    WHERE’S MY GUN???