Interesting WSJ interview with Peter Orszag, White House Budget Director from 2009-2010, talking about the budget deficit and Social Security reform. He makes the case for reforming Social Security now:
Because it’s doable. In the face of an increasingly polarized political system, it would show that we can tackle things before there are crises. Defenders of Social Security are right: It’s not a crisis. For that very reason, it would be a good signal to fix it now. Also, the defining debate of five, six years ago — whether private accounts should be part of Social Security — has been definitively won for the time being. That may not always be the case. If you delay reform at this point, and wait 15 years… that idea could come back forcefully. It strikes me, therefore, that it would be a good thing to lock in reform now when you’ve won on that key issue and then you have all the normal arguments for acting soon — you can phase things in more gradually, etc…
Further, he notes the current debate that is focused on cutting discretionary spending does not address the real long term issues and is likely bad for economic growth:
The irony is that by not providing credible out-year deficit reduction… the result is that you put more pressure on immediate fiscal consolidation — i.e. the discretionary spending reduction. Those are actually harmful to the macro economy given where we are in the business cycle. So the irony is that some of the people most concerned about Social Security or other out-year fiscal measures, may arguably be making the world a worse place even from the perspective of short-term macro because that desire for fiscal discipline is inappropriately transferred to the current fiscal year.
And he makes clear that anyone interested in closing the budget deficit will have to embrace tax increases in the future in addition to spending reductions:
Fundamentally what that’s going to have to involve is more revenue… I would be surprised if you could get well north of one-half of a percent of GDP in spending reductions by 2015 — across discretionary, across everything. Therefore if you’re facing a gap of 2% of GDP… you have to have a big revenue piece.
He goes on to argue that allowing the current tax rates to expire in two years is the simplest way to do so, since as the default in law, it would take a filibuster-proof majority to change it. Ezra Klein makes the same case.
A further reason why Social Security reform now makes sense is that if an agreement is reached there is every reason to believe that it can be implemented as planned so long as the original agreement is specific in any benefit cuts and revenue increases that are part of the plan. Because Social Security provides cash to beneficiaries that are indexed in some way or another to inflation, it is a very predictable program. Cost savings from health care reform (whether via the Affordable Care Act or any alternative that may be developed) will be far more speculative and unpredictable, simply because Medicare and other insurers are purchasing health care on behalf of beneficiaries, a far more complicated endeavor than mailing someone a check. Having Social Security ‘off the table’ would allow us to focus our energy on health care costs. It will take us 30 years to get that straight.