Friday, January 14, 2005

As Cher would say: “You better sit down, kids

Can we agree that this….

…is a problem? Because the reality is worse. As Robert Samuelson notes in today’s WashPost, “It’s more than Social Security”:

Our national government is increasingly a transfer mechanism from younger workers (i.e. taxpayers) to older retirees. In fiscal 2004 Social Security ($488 billion), Medicare ($300 billion) and Medicaid ($176 billion) represented 42 percent of federal outlays. Excluding spending that doesn't go to the elderly, the Congressional Budget Office crudely estimates that these programs pay an average of almost $17,800 to each American 65 and over. By 2030 the number of elderly is projected to double; the costs will skyrocket.
In article about the challenges of President Bush’s second term, The Economist also gives warning on the explosion of Medicare spending:

These numbers can be hard to interpret, but the larger point is that Social Security is on an unsustainable trajectory, one that goes well beyond the retirement of the baby-boomers. It is not an immediate “crisis”. In fact, payroll-tax revenues will exceed pension payments until 2018, masking America's overall fiscal imbalance. Nor is it America's biggest long-term fiscal problem. The financial burden from Medicare will be much bigger (see chart 2). Mr Bush's first-term decision to introduce a prescription-drug benefit for retirees worsened Medicare's long-term financial imbalance by more than twice as much as the entire Social Security problem. Nonetheless, Social Security needs fixing. And that means either boosting revenues (for instance, by raising payroll taxes) or reducing promised benefits.
My supply of homespun metaphors to describe the entitlements problem is lower than a doodlebug in Aunt Tilly’s root cellar: the iceberg ahead, the pyramid scheme, generational war, the termites eating your house, etc. Washington can agree to face the problem now or it can fall back on political grandstanding and demagogic innumeracy.


Dave said...

President Bush and the GOP Congress have the opportunity to fix this problem before it hits crisis mode. I am encouraged by the actions of Sen. Lindsey Graham, who is reaching out to moderate Dems with more centrist proposals. Truth be told, we don't NEED the massive restructuring of SS that Bush wants, it's just that conservatives feel that would be the best solution, maybe for ideological reasons. Here are some pragmatic solutions for the problem that will be easier to get through Congress and still solve the problem.

For Social Security:

1) Raise the retirement age to 70. People today are living until 90. There's no reason that the state should subsidize folks for 25 years of their lives. This is not the 1930s, when the avg person died at 61! People can wait a few more years to get Soc. Sec.

2) Lower the tax RATE of Social Security on employers and employees while raising the AMOUNT of taxable income subject to the FICA tax. The result would be more revenue and, yes, technically a net tax hike on some wealthy Americans. But it would be marginal and wouldn't adversely effect the economy. Once again, the only reason to reject this proposal is for ideological reasons (i.e., taxes are bad) and, as a pragmatist, I feel that we must move beyond such theory to get to our goal.

These two things alone would save SS for everyone who's working today, and probably a bit longer. If we can, let's try the IRAs as well, but it's not essential.

For Medicare and Medicaid, I'm not versed enough in health policy to make a recommendation. I do think that something has to be done that will a) lower the cost of these prgms to the government, b) make them work better for the general public, and c) address the health care problems that are at the root of the mess, such as the rising cost of health care and the fact that there are still many uninsured Americans. Tort reform is one way to lower health costs. Making it easier for employers to offer health plans to their employees is another way. But we have to do something. Otherwise, we'll have a busted budget, a popular revolt over health costs, and we'll wind up with President Hillary and her nanny-state agenda.

The Republicans and moderate Democrats have the opportunity to step up to the plate with pragmatic solutions to major problems. The challenge for the GOP is to look to solutions and not just to ideology. For the Dems, the challenge is to put aside their hatred of Bush for the good of the country. Let's see if they can do it.

jaws said...

Even to an economic knownothing like myself, these charts show that something really needs done with Social Security...heck, at this rate I'm not expecting to receive a check when I'm of SS age (which is quite a ways away)

As for the other part of the lower chart, the "Medicare Reform" that Bush pushed through last term needs another reform--cause it's making things worse. As Bruce Bartlet said in a column a while ago (I can't recall the date and I"m too lazy to dig up the link right now), that the "medicare reform" should go the way that "New Coke" yanked off the market and redone totally

TM Lutas said...

The good news on medicare is that there are easy savings to be had. Medical care is an IT mess with lots of paper forms increasing costs. There's a 10 year IT initiative that the Bush administration is pushing that will capture a lot of savings that aren't in any of today's projections. Furthermore, nobody really understands exactly how many "belt and suspenders" tests and extra opinions are being paid for to stave off the lawyers. Tort reform is going to shrink a lot of that.

Finally, I think that nobody's accurately accounting for substitution effects. People who would have gotten very expensive surgery under old style medicare are going to get medically managed with pills in the new regime. That sort of effect isn't well measured in government budgeting if it's measured at all.