US not ready for a budget commitee

As I wrote the other day, I have always been lukewarm to the idea of a budget commission because I don’t think we are ready, politically or economically, for serious deficit reduction. I also have problems with the way the proposed commission would be structured–requiring a supermajority for every recommendation seems like a recipe for gridlock.

That said, I have just been appalled by idiocy of the arguments against the commission that appear to have won the day in the Senate. In particular, the idea that revenues should be completely off the table is simply insane. And the idea that Social Security should be completely off limits is only slightly less crazy.

Every serious budget analyst–I mean every–knows that revenues must be part of the solution to our deficit problem. We can debate how much and what form higher revenues will take, but the idea that we can or even should embark on serious deficit reduction with no tax increase whatsoever is grossly immature and unworthy of consideration.

The idea that we can rope off Social Security is only slightly less bad. I say „slightly” because every budget analyst–I mean every–knows that the root of our fiscal problem, insofar as spending is concerned, is Medicare. But Social Security and Medicare are joined at the hip so it is difficult the fix one without addressing the problems of the other as well.

For example, my preferred solution to the entitlement problem is to sharply raise the age at which people qualify for benefits. The normal retirement age should be 70 right now and early retirement should not be available until age 67. Both should be indexed to longevity so that they rise a month or so per year forever.

A serious mistake was made in 1983 when the age to qualify for Social Security was raised to 67 but the age to qualify for Medicare stayed at 65. I think Obama made a serious error in not fixing this mistake by proposing to at least raise the age to qualify for Medicare to the same age as Social Security.

Roping off Social Security from consideration by a deficit commission will make it impossible to raise the normal retirement age. It will also prevent changes in the indexing formula for initial benefits, which currently raises real benefit levels for every age cohort. Wage indexing should be replaced by price indexing. And the price index used to adjust benefits for retirees should more accurately reflect the cost of living.

In conclusion, the arguments of those opposed to a deficit commission have caused me to change my view. These arguments are so terrible that they have made the arguments of those supporting the commission seem convincing. So I say to any senator who gives a damn, vote yes on the commission. It may only be the equivalent of dipping one’s toe in the pool, but we have to start somewhere.


Tagi


Artykuły powiązane

The burdens of population aging and possible solutions

Kategoria: Macroeconomics
The burdens of population aging and possible solutions

Poland needs to take care of the Ukrainian immigrants

Kategoria: Macroeconomics
Poland needs to take care of the Ukrainian immigrants

The EU bureaucracy and the free market

Kategoria: Macroeconomics
The EU bureaucracy and the free market

Popularne artykuły

Gdzie będzie polska gospodarka za lat 5, 10

Kategoria:
Gdzie będzie polska gospodarka za lat 5, 10

Finanse publiczne: Brak długofalowego myślenia

Kategoria: Rynki kapitałowe
Finanse publiczne: Brak długofalowego myślenia

Bankowość pod okiem Allaha

Kategoria: Rynek bankowy
Bankowość pod okiem Allaha

Jak rozwijał się kryzys 2007-2009 - infografika, kalendarium

Kategoria: Polityka pieniężna
Jak rozwijał się kryzys 2007-2009 - infografika, kalendarium

Łosoś nie zastąpi ropy. Norwegia w kryzysie

Kategoria: Wskaźniki ekonomiczne
Łosoś nie zastąpi ropy. Norwegia w kryzysie

Pracownicy widmo, czyli jak komputery wynajmują ludzi do prostych prac

Kategoria: Trendy gospodarcze
Pracownicy widmo, czyli jak komputery wynajmują ludzi do prostych prac