Fiscal Policy after the Election


As the presidential election tightens and the likely margin of victory for either candidate continues to shrink, it becomes ever more apparent that we need a bipartisan approach to solving our most basic problems.  My last post discusses the need for fundamental tax reform to get our economy growing faster to create more and better paying jobs.  Today I remind my readers of the need for better fiscal policies as well to address our massive and steadily deteriorating debt problem.
As the American Enterprise Institute,  among many other think tanks, makes abundantly clear, we are spending more and more of our federal budget on entitlements  as opposed to all of the many other federal responsibilities which are lumped together as discretionary spending.  In other words, the only way to fix our deficit and debt problems is to achieve better control over entitlement spending.

AEI has some excellent ideas on how to do this:

  • Social Security should move towards providing a universal flat benefit, set at the federal poverty level, for all U.S. residents aged 65 and older. Social Security would then become a guarantee against poverty in old age rather than a scheme for partially replacing pre-retirement earnings for middle and higher earning households.
  • Health Care. The Affordable Care Act should be replaced with a less regulated system (i.e. no mandates). The federal tax preference on employer plans could be limited to the cost of catastrophic (high deductible) insurance plus a contribution to health savings accounts. Households without employer coverage would receive a comparable tax credit.
  • Medicare would be converted into a premium support system with a fixed level of support comparable to that provided by employers.
  • Medicaid would be converted into a block grant program for the states based on the fixed, per capita costs for enrolled populations.
  • Other Safety-Net Programs should emphasize work as the key to improved economic prospects plus greater state control over resources in order to encourage innovation.

Conclusion. It should be emphasized as strongly as possible that the purpose of entitlement reform is to preserve and strengthen entitlements, not to weaken or destroy them.  Without such action we are headed for a much worse financial crisis than the one we had in 2008-2009 which will put all government social programs at risk.

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10 thoughts on “Fiscal Policy after the Election

  1. Jack your reasoning here is flawed. You are ‘preserving and strengthening’ Social Security by giving it a completely new charter. This is like fixing a broken refrigerator by calling it a door stop.

    FDR designed Social Security specifically so that it would not be a welfare program. You are supposed to get benefits based on what you contributed. If not, why have SS at all? Simply let them money come from an actual welfare program. End SS and send the resources to an actual welfare program, like SSI.

    Your goal is to keep a program named Social Security, and what it does is of no consequence.

    • The fundamental goal is to fix SS finances long term. Actuarially, the soundest method is to increase the eligibility age beyond 67, because longevity is increasing continually over time. But this method has strong opposition. Another proposal is to raise the income cap significantly (or even to remove it altogether). But this method would reduce taxable income of the wealthy and lower tax revenue, thus making annual deficits worse.
      I agree that the AEI proposal above would be a fundamental change to SS but it does fix the problem in a fiscally sound and totally fair and compassionate manner.

      • Just like fixing a broken refrigerator by calling it a door stop.

        Walk me through fair because you have an interesting meaning. For someone born in 1960, we will have paid the most of any co-hort so that our parents and grandparents could have a system of old-age insurance. So we are going to penalize the guy who contributed the most, by converting old-age insurance into a welfare program. How is it fair to take the most from the guy who contributed the most?

        How is it fair, much less honest, to pretend that the new version is the same as the old one. Why not just end the past, and transfer the resources to a welfare program. The net result is the same.

  2. First of all, any new system would be phased in over time. Since the SS Trust Fund won’t be depleted for about 15 years (at which time all benefits will be substantially reduced), we have 10 – 15 years to get the problem fixed.
    I agree that FDR wanted a self funded old-age insurance program for all, not another welfare program. The point is that we need substantial changes to make the current program financially sound. The equal stipend for all, as an eventual means of accomplishing this, is an attractive way to proceed.

  3. A typical 68 year old expects to live about 18 years. So 15 years isn’t really a very big deal.

    You are planning to cut benefits yourself, so what is the difference between all benefits will be ‘substantially reduced’ and those cuts being concentrated on the individual. You are talking about cuts of 20% as ‘substantial’ and yet the average American would lose about 30% in your equitable solution. Average benefits would drop from $1,300/mo down to the $1,000 range.

    How is your fix any different from just ending the program, and transferring the resources to an actual welfare program. The only thing you are saving is the name, and telling younger Americans that what is good for me is too expensive for you.

    • Simpson Bowles is out of date, and demonstrates that the problem is time not demographics. By 2013 Simpson Bowles issued an update that excluded Social Security from its overall proposal. The commission said that changes to the solvency picture meant that further changes needed to be made.

      I am about to take-down the site. Here is the review of the Simpson Bowles plan that we offered to the public. We said : This plan throws out the baby and keeps the bathwater.

      Social Security Title 2 was designed to be old-age insurance. We need to focus on managing the risk of old-age, and less on things that are unrelated like ex-spousal benefits. We aren’t trying to fix Social Security. We are trying to pay for its brokenness.

      • Thanks for all of your comments. I just want to fix the SS funding problem, the sooner the better, before the Trust Fund is exhausted. I don’t have a strong preference for any specific plan to get this done.

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