Wednesday, October 27, 2004

Social Security and the Legislature

In my last post, I tried to clarify some of the misstatements the Kerry campaign has made about the President's Social Security policies. I noted that I think this issue (and the analogous problems in the Medicare system) should be receiving more attention in the campaign.



More importantly, programs that redistribute hundreds of billions of dollars per year should be addressed as part of the high-frequency activities of both the legislative and executive branches of government. We shouldn't think about reform only in the crucible of a partisan election campaign. The President convened a commission, thanked it for its report, but has done little in public to move the issue forward since then.



What has Congress done? The good news is that there are several Senators and Representatives who have put forward reform plans that are well specified enough for the Office of the Chief Actuary at the Social Security Administration to analyze and formally report on them. A list of these plans, with links to the reports, is available here. The list includes plans by people in and out of elected office. There are plans that include large personal accounts, small personal accounts, and no personal accounts. The idea that we would be starting from scratch in discussing reform is misguided. There already exist several plans that would be reasonable places to begin a new round of bipartisan discussion.



Some legislators have taken a leadership role on this issue. If it were up to me, and I had to pick one of these plans to start the discussion, I would pick Senator Lindsey Graham's plan, given its focus on solvency and its inclusion of personal accounts, but I am by no means endorsing that plan to the exclusion of others. There are also plans from Representative E. Clay Shaw Jr. and Representative Paul Ryan, who are Chairman and Member (respectively) of the Social Security Subcommittee of the Ways & Means Committee. Again, these plans are not perfect, but they do represent more of a contribution to the debate than the ambiguous statements of politicians who won't develop a specific plan.



Unfortunately, this latter group includes the senior Democrats on the Ways & Means Committee, and this, along with Senator Kerry's refusal to make any specific statement about restoring solvency while criticizing the Commission's plans, undermines the Democrats' credibility on this issue. Consider the following two examples.



Congressman Robert T. Matsui is the ranking Democrat on the House Ways & Means Subcommittee on Social Security. His website's page on Social Security also lists him as the Convening Co-Chair of the Social Security Leadership Task Force for the House Democratic Caucus and the "leading opponent" of Social Security privatization. The website says nothing about how he would plug the $10.4 trillion hole in Social Security's long-term finances. With respect to finances, it says only, "As a result, Matsui believes that today’s choices should be targeted and incremental improvements to the system that will also help increase very long-term solvency." Even these "incremental" improvements are not enumerated.



Congressman Charles B. Rangel is the ranking Democrat on the House Ways & Means Committee. Social Security does not figure prominently on his website, but there are links to the Democrats' Ways & Means Committee website. That website has mostly political statements about current news and legislation, including my own favorite, a selective misrepresentation of the Economic Report that rivals the Kerry campaign's. It does eventually have a section on the challenges facing Social Security. In the answer to the question, "How big is the problem?" the website states:

The long-range actuarial deficit is 1.92 percent of wages that are subject to Social Security taxes. That is, raising Social Security’s revenues, or cutting its benefits, by an amount equal to 1.92 percent of wages would close the gap.
Very poor form. The 1.92 percent long-term actuarial deficit is measured only over the first 75 years of the projection period. (This was the figure from the 2003 Trustees Report, the latest one available when this webpage was last updated in June 2003.) The analogous figure is 1.89 percent in the 2004 Trustees Report. If all that occurred was a revenue increase of 1.89 percent of taxable wages for the next 75 years, then after the end of this 75-year period, the system would face annual deficits of 6 percentage points of payroll with a Trust Fund equal to one year's worth of benefits, or about 20 percent of taxable payroll that year. (See the last number in this table to verify the 6 percent annual deficits.)



The problems with using this 75-year actuarial deficit, along with other abbreviated metrics for the system's finances like the date of trust fund exhaustion, are clearly explained in Chapter 6 of the Economic Report of the President (pages 137-139, in a section appropriately named, "Misunderstanding the Financial Crisis"). The first page of the Economic Report of the President has the words "Transmitted to the Congress." I wonder.



Whether in the campaign or in their decades-long tenures in the legislature, the Democratic leadership appears to be capable of nothing but criticizing other people's positive contributions to the debate on Social Security reform. And every year that this issue goes unaddressed shifts more of the burden of resolving it onto future generations.

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