The CBO’s budget and economic outlook, released last week, looks bleak. And one of the drivers of future budget shortfalls? Social Security.
During the Feb. 13th house budget hearing on CBO’s outlook, Rep. John Campbell (CA) asked Doug Elmendorf – CBO Director – if we were in a pickle with regards to the U.S. budget. Elmendorf responded with a resounding, “Yes.” The budget pickle is when to start decreasing budget deficits.
Both sides of the aisle agree that something needs to be done, but they cannot agree on how or when to start taking action.
Cutting spending and raising taxes today will result in a worse economy – meaning fewer jobs, lower wages and the risk of fiscal instability. The problem with waiting until tomorrow is that the outcome would be the same – lower wages, fewer jobs and an increased risk of fiscal crisis.
The CBO projected that the debt to GDP ratio held by the public will decline until 2015, but because of the aging population and growing interest payments on federal debt, by 2023, the debt will equal 77 percent of GDP and have an upward trajectory. Interest on debt and the aging population are the two main drivers of the budget problem.
Dr. Elmendorf explained in the hearing that by 2023, the U.S. will pay $857 billion dollars – which would be the third largest budget item – on debt interest alone.
The two budget items costing more than the debt interest would be Social Security and Medicare/Medicaid. Although very controversial, reform on these two items is absolutely necessary, because despite the small cost today it would yield a great future benefit.
The benefits of reforming Social Security and Medicare/Medicaid are two fold, decrease debt and thus decrease debt interest. The notion to target these two government expenses is nothing new. Both the Bipartisan Policy Center and Simpson – Bowles (a bipartisan commission created by Mr. Obama to study the debt crisis and offer solutions) have given official reports that prescribe reform to Social Security and Medicare/Medicaid.
These two groups offer several different suggestions to make moderate changes. For example, an incremental age increase to qualify for Social Security could save billions of dollars.
Many opponents of Social Security reform worry about our commitment to the elderly, but changing the requirements for Social Security does not rob our older generation, or break any promises, because change will be gradual. And Social Security, like Pell Grants and Stafford Loans, is an entitlement program, and not many accused the government of robbing students when they slashed funding for student aid a year and a half ago.
Action needs to be taken. The CBO report stated, “federal debt held by the public is projected to remain historically high . . . such high and rising debt would have serious negative consequences”.
There exist several difficult budget decisions, yet if done right Social Security reform can help solve problems and not cause them.