Thursday, December 15, 2005

Fiscal Challenges, Social Security and Changing the Debate

by Calculated Risk on 12/15/2005 02:22:00 PM

From Professor Samwick at Vox Baby:

Along with Jeff Liebman of Harvard University and Maya MacGuineas of the New America Foundation, I am pleased to announce the "Nonpartisan Social Security Reform Plan."
My response was blunt:
Professor, I appreciate your efforts, but ...

The two most pressing fiscal challenges for the US are: 1) the health care system and 2) the General Fund Deficit (close to $600 Billion this year alone).

Social Security is irrelevant when compared to those two problems.

I suggest fixing the most serious problems FIRST, and then returning to Social Security.
Ranking the Challenges

Any good manager would 1) measure the problem and then 2) solve the largest problems first. With that approach, here are the three largest fiscal challenges facing the United States:


Click on graph for larger image.

This chart shows the relative sizes of the three major fiscal challenges over the next 75 years. The NPV for the General Fund deficit is based on deficits equal to 5% of GDP. Note: the fiscal 2006 general fund deficit will be close to 5%.

The estimates for Medicare and Social Security are from the GAO report (pdf): The Long Term Fiscal Challenge

From the GAO report:
"Health care is a bigger problem than Social Security. Participants acknowledged the need for Social Security reform but emphasized that Social Security is a relatively small part of the long-term fiscal challenge when compared to spending on health care. ... Several participants observed that few members of the public are aware of this. Rather, the general public impression is that solving Social Security would solve most of the longterm fiscal challenge, and this is not correct.
And on the General Fund deficit:
"Participants agreed that a key moral context is the impact federal budget deficits will have on future generations."
Conclusion

The debate should be focused on the two major issues: Health Care and the General Fund deficit. Without addressing those issues first, reforming Social Security is irrelevant.