TW: Bartlett makes more sensible points regarding fiscal reform. The most important angle being the need to address the issues now even if taking contractionary measures today amidst the Great Contraction makes no sense. What is important is to define the measures with phased in enactment so that the market can see more stringent fiscal policy out in the future and the measures can be created in a non-crisis environment.
Bartlett focuses on retirement ages but the process point (define now for later enactment) is relevant to other potential changes (e.g. defense, public pensions, benefit levels etc.).
From Bruce Bartlett at Forbe:
"...we don't want to impose spending cuts or tax increases that would take effect until we are past the crisis. But that doesn't mean that we can't start planning now for deficit reduction or put in place policies that wouldn't take effect for several years. If we wait until another crisis is upon us that demands deficit reduction, many options that are available today will be foreclosed by the necessity of acting quickly...
...if Congress is under pressure to achieve budgetary savings right away in response to a crisis resulting from runaway inflation, a crashing dollar or sky-high interest rates. That is because the only means of cutting entitlements in the short run are extraordinarily difficult to achieve, politically, and don't even achieve lasting savings. But those that are easier to achieve and have long-term effects necessarily require a considerable amount of time to take effect.
Regarding Social Security, it is simply impossible to cut benefits in the near term. Beneficiaries believe, rightly or wrongly, that they have earned every penny they receive and will ferociously fight any effort to cut them as strenuously as a mother bear would fight to protect her cubs.
Indeed, there is an effort underway in Congress right now to pay a Social Security COLA in January even though there has actually been deflation--a falling price level--over the past year. Between August 2008 and August 2009, the Consumer Price Index fell 1.5%. Yet because of the power of the elderly on Capitol Hill, there is a good chance that they will get what they want, because they always get what they want.
...The easiest and best way to cut both Social Security and Medicare is to raise the age of eligibility...
This year, one will need to be age 66 before drawing full Social Security benefits. This will rise to 67 in the year 2022. Thus it will take almost 40 years for the rise in the retirement age to become fully effective. People may still retire at age 62 with much reduced benefits--benefits that are permanently reduced and do not rise when one reaches age 66. Early retirees are also severely penalized for working by having their benefits reduced if they earn over a small amount.
...Long ago, the age to qualify for Medicare should have been raised to the same age to qualify for Social Security.
...Congress didn't increase the retirement age nearly enough. Just since 1980, life expectancy for men at age 65 has increased by almost three years, from 14 years to 16.9 years. For women, the increase has been from 18.4 years to 19.3 years past the age of 65. Social Security's actuaries predict that longevity will continue to rise. By 2050, men are expected to live another 19.6 years beyond age 65 and women will live another 21.7 years.
Giving people the same number of years on Social Security that they received in 1940 would require a normal retirement age of at least 70 right now. With the anticipated growth in longevity, we would need a retirement age of 73 by the year 2050.
I am not necessarily advocating a particular retirement age. I'm only pointing out that there is ample justification for taking an action today that would not take effect for many years and that would achieve significant savings in entitlement spending that might be doable, politically.
But precisely because an increase in the retirement age would have to be phased in over many years, it would necessarily be off the table in the event of a fiscal crisis requiring cuts in spending immediately and in the very near future.
Given the limited opportunities for cutting spending in the very near term and the fact that entitlements are effectively off limits owing to their nature, it has long been the case that tax increases were the fastest way of cutting deficits when Congress has been moved to act. Indeed, almost all of the real deficit reduction of the 1980s and 1990s budget deals came from higher taxes.
Therefore, those who wish to prevent tax increases in the future should be doing everything in their power to enact changes in entitlement programs today, before the crunch hits..."
http://www.forbes.com/2009/10/08/deficit-medicare-social-security-opinions-columnists-bruce-bartlett.html
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