EVENTS

Date:	Wednesday, April 29, 2009
Time:	9:30 AM -- 12:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

WASHINGTON, MAY 4, 2009--When it comes to addressing the entitlement cost crisis, "time is of the essence," Representative Jim Cooper (D-Tenn.) explained at an AEI event on April 29. Cooper and his Republican colleague Frank Wolf (R-Va.), recently introduced the Securing America's Future Economy (SAFE) Commission Act, a proposal that would require Congress to address the fiscal imbalance imposed by Medicare, Medicaid, and Social Security commitments.

Representatives Frank Wolf (R-Va.) and Jim Cooper (D-Tenn.) speak at AEI on April 29, 2009. Photo by Peter Holden Photography/AEI.

The sixteen-member SAFE commission--composed of administration officials, members of Congress, and outside experts--would hold town hall meetings across the country and form recommendations to balance the federal government's long-term fiscal obligations. These recommendations would be presented to Congress for an up-or-down vote, forcing members of Congress to go on record with their constituents and giving them cover to make difficult decisions.

Although Cooper and Wolf did not identify any specific recommendations that they would expect the commission to make, they underscored the scope of the impending crisis, which they estimated to be $56 trillion in unfunded entitlement obligations in coming years. "If Congress fails to act, America could lose its AAA credit rating by as early as 2012," Cooper asserted. If you "destroy the credit rating of the greatest country in the history of the world, you're not just playing with fire, you're playing with nitroglycerin." The size of federal commitments to health and pension entitlement spending, he said, make the government "a giant insurance company with side businesses in defense and homeland security."

Despite the difficulty of the task they have set for themselves, both congressmen were optimistic about the possibility of reform. "I believe that this would bring about an economic renaissance in our country," Wolf said. Success, he added, will depend on having "credible and convincing leaders" and adequate resources for the commission and its staff.

Following the congressmen's presentation, AEI resident scholar Andrew G. Biggs, the former principal deputy commissioner of the Social Security Administration, discussed population aging as the primary driver of entitlement growth in the short to medium term. While many argue that health care inflation is the predominant cause of entitlement growth, Biggs explained that, properly analyzed, "over the next 20 years, population aging will account for over 60 percent for total entitlement spending increases. It is not until 2045 before healthcare inflation becomes the predominant driver of entitlement costs." He explored this topic further in a 2008 Health Policy Outlook.

The Hudson Institute's Chuck Blahous added that the fiscal consequences of the current economic downturn have made these changes more urgent. "When you put our near-term difficulties together with our long-term trends, you see some very disturbing phenomena." The disappearance of the Social Security surplus is the most noteworthy example, which has resulted from increased retirement payouts to baby boomers and sagging payroll tax revenues.

An alternative picture of the projected spending crisis was presented by Henry Aaron of the Brookings Institution, who asserted that "it would be wrong-footed from the very beginning [to] describe [the fiscal challenges] as an entitlement problem. It isn't a 'Social Security, pensions, and other entitlements' problem. . . . It is a 'public spending on health care' problem." Focusing on spending projections for various entitlement categories, he pointed out "the projected deficit, eliminating Medicare and Medicaid impacts, is in the vicinity of 1 percent of GDP. There's not a big problem there." To address problems with health care spending, Aaron urged "systemic health care reform" accompanied by additional deficit reduction, including spending reductions and tax increases. 

The panelists agreed that a SAFE commission could be a useful tool for addressing the entitlement crisis. However, Biggs cautioned that any panel would need to "represent the reasonable spectrum of opinion on the issues." Blahous identified characteristics of successful past commissions, explaining that past panels agreed about the scope of the problem, contained a bipartisan appointment mechanism, involved outside experts in the decision-making process, resisted outside pressure from special interest groups, and counted on behind-the-scenes assistance from the administration. Aaron agreed with Blahous's criteria but argued that the necessary consensus on the causes of future deficits has not yet been reached. Aaron also criticized the SAFE proposal for inviting "a minority of the commission, as few as five members, to authorize projections based on alternative economic assumptions." He also remained leery of a panel whose success would be based on long-term projections: "I can't think of a better way to hang up a commission." Before anything can be done, Aaron said, "we have to wait for the economy to improve, and we absolutely require presidential leadership in order to deal with this problem."

--AMY RODEN

• Video, audio, and event materials
• AEI's Retirement Policy Outlook series