Oh yeah, that social security problem…

Social security reform took a back seat to healthcare reform, but the Congressional Budget Office has recently announced that the program will be in the red this year – far sooner than expected.

We’ve been so busy with health care reform and trying to figure out how to “bend the health cost curve” that we’ve almost forgotten about the other federal entitlement program that is on an unsustainable (albeit less severe) fiscal path.

An article in today’s New York Times reminds us of that other program, Social Security, with the newsworthy event being a Congressional Budget Office table that reveals the program is expected be in a cash deficit this year–with Social Security benefits paid out expected to exceed Social Security payroll taxes collected.

True, the Social Security program only faces one of the two pressures adversely affecting Medicare spending: just the demographic challenge of a rising elderly population relative to the working-age population. And as a result the problem is not as large. Some argue that’s a reason not to worry about it–and not to do anything about it until it’s more certain we’re right at the doorstep of that unsustainable fate.

Not doing anything about Social Security now would be fine if either: (i) we knew what to do with the much bigger challenge of much more rapidly rising Medicare spending (i.e., we knew how to flatten that health cost curve and were really on the way to doing it), or (ii) we didn’t know what to do to close the much smaller Social Security deficit.

But the fact is that it’s hard to know how to solve the Medicare problem and relatively easy (mathematically and economically) to solve the Social Security problem. We know how to solve the latter, and I think most Americans in hearing what some of these solutions are (see this NYTimes editorial blog featuring some experts’ ideas), would think they were no big deal.

Why, just this week my (very socially-conscious) 17-year old daughter, Emily, brought up the unsustainable fiscal outlook and said she didn’t understand why we don’t just raise the retirement age–which is what both Bill Gale (of the liberal-leaning Brookings Institution) and Andrew Biggs (of the conservative-leaning American Enterprise Institute… ok, perhaps more than leaning, but more on the David Frum story later) recommend in the NYTimes piece. Emily spoke of raising the retirement age as a “no brainer”–and not because I’ve brain-washed her but perhaps because she knows her mom will be working forever anyway just to pay for her and her three siblings’ college educations…

Of course no one likes to work longer, just like no one likes to pay higher taxes or have limits on their subsidized health benefits. But let’s face it: there will have to be more of these things we don’t like, and to me it’s a simple cost-benefit analysis.

The relative benefit of doing something we know how to do sooner (reducing the Social Security deficit) seems high in that small, phased-in changes now can save a lot of compound interest going forward. Even if it saves us more money than the size of the (small) Social Security “problem,” that’s a good thing, because chances are really good that our other reforms to the other programs will save us less money than the size of those other (bigger) problems. And any pain associated with these Social Security fixes–such as a gradual rise in the retirement age–seems relatively low and “easy” compared with those other (currently largely uncertain) ways of solving the long-term fiscal challenge which we’ll still be trying to figure out for many, many years to come, and which will have to result in much more fundamental (and ultimately painful) changes to those other programs.

So yeah, we still have this little problem of Social Security, but it’s completely and pretty easily solvable–and so we should be paying attention to it, now.

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