The Trustees’ Reports

Release of the annual reports of the Social Security and Medicare Trustees last week was met with resounding hallelujahs.  It was as though our nation’s fiscal problems were declared officially over.

In a prominent cheer, Paul Krugman in the New York Times announced that “The Geezers Are All Right.” Various news stories portrayed the campaign for a budget “grand bargain” to be dead.

I don’t see it quite that way.  I will concede that the prospects for a fiscal deal in Washington are perhaps even a little more dead than they were before the reports.  But the good news in the Trustees’ reports goes no further than buying Washington a little more time – and perhaps not as much time as Washington needs to head off the ultimate, unavoidable (as even Krugman acknowledges) Social Security and Medicare problem.

To start with a broad overview of the reaction:  What you see in the mirror of the Trustees’ reports depends heavily on who you are – and in particular, what you believe about the meaning of the Social Security and Medicare Trust Funds.  The people who reacted most positively and strongly to the reports were those who believe that Social Security and Medicare can pay their benefit obligations with their trust funds, and the full-faith-and-credit Treasury special certificates in those funds.  Those who reacted most skeptically believe that the assets in those trust funds cannot costlessly be realized to meet the benefit obligations of those programs.

CED’s Way Forward

There is no live option.  In fact, all the options are dead on arrival.  At this moment, there is no politically viable idea for addressing the nation’s looming budget problem.

So in a world of dead options, the task is to find the option that is least dead, and pump some life into it.  That is why, several months ago, CED suggested the strategy of “saving Social Security first” [see here for a blog post on this topic, and here for a statement from CED’s Trustees] to begin the difficult process of turning the nation’s rising debt burden around.

With the recent release of the revised budget outlook by the Congressional Budget Office (CBO), Washington’s interest in hard choices has waned even further.  The deficit is projected to decline in dollar terms for two more years; the debt will fall as a share of the GDP from 2015 through 2018 – that is, until three elections cycles from now.  The mentality of the body politic is to ignore such a long-term issue.  After all, it might just go away.

So this blog post will put these two factors together.  The budget problem is in remission, but not cured; and that makes the approach of fixing Social Security as a first step even more appropriate.

So point one:  Why should the nation still be concerned about fiscal responsibility, even after CBO reduced its estimates of future deficits?  Here are three simple reasons:

Where Do We Go From Here?

No one is satisfied with the “fiscal cliff” legislation that was born at the turn of the year.  Specifically, the federal government’s financial obligations are not satisfied, and a new budgetary booby trap has been set; there is no question that the ballooning public debt must be addressed again in short order.

So what happens next?  How do we get out of this bleak place?

Washington policy watchers are caught in an intellectual vice – or actually, three of them simultaneously.  To sketch out a “grand bargain” on the basis of the behavior of the last decade and a half is totally unrealistic.  But without an unrealistic, fundamental change of Washington behavior, this potentially malignant problem does not get solved.

When Are Spending Cuts Real?

Over the last 72 hours, former Florida Governor Jeb Bush has done a messaging tap dance.  First he made comments about the political behavior of former President Ronald Reagan and also his own father, former President George H.W. Bush.  But then Governor Bush made a more-current substantive statement: that he would accept a deficit-reduction deal that included ten dollars of spending cuts for every one dollar of tax increases.

For that, he was immediately castigated by members of his own party.  Among them, Republican activist Grover Norquist criticized Governor Bush by saying that “…he thinks he’s sophisticated by saying that he’d take a 10:1 promise. He doesn’t understand — he’s just agreed to walk down the same alley his dad did with the same gang. And he thinks he’s smart. You walk down that alley, you don’t come out. You certainly don’t come out with 2:1 or 10:1.” Norquist’s organization, Americans for Tax Reform, posted a statement saying that “When bipartisan deals are struck promising to cut spending and raise taxes, the spending cuts don’t materialize but the tax hikes do.”