The following comments were submitted by CEPR to the National Commission of Fiscal Responsibility and Reform on August 11, 2010:
The Center for Economic and Policy Research (CEPR) is a non-partisan think tank in Washington, DC, that was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.
Since its founding, CEPR has conducted analyses of Social Security and the federal budget. Here is a summary of our most recent work on federal deficits and Social Security, which we hope will be useful to the Commission as you continue your deliberations.
CEPR's most recent relevant paper, Hard Work? (attached), finds that over 8.5 million workers (45%) over the age of 58 have jobs with physical demands or difficult physical working conditions. As employment in such difficult jobs is a major cause of early labor-market exit among older workers, many would be physically unable to extend their work lives, and they would most likely be left with no choice but to receive reduced benefits if the normal retirement age for Social Security were increased. An increase in the retirement age also is likely to put a greater burden on demographic groups that have higher proportions of workers in difficult jobs. In particular, difficult jobs are more likely to be held by men, Latinos, the least educated (less than a high school diploma), immigrants, and the lowest wage earners.
Social Security and the Age of Retirement (attached) finds that much of the increase in life expectancy experienced during the 20th century occurred between birth and age 20 as well as during working years, which exaggerates perceived increased years in retirement. This paper explains that once they make it to age 65, workers born in 1999 have less than five years more life expectancy than those born a century earlier. And those born in 1999 can expect to work six years longer than those born in 1899.
Another recent paper, The Impact of Social Security Cuts on Retiree Income (attached), assesses the potential effects of three often-discussed proposals for reducing Social Security benefits: adopting a “progressive price” indexation formula for the basic benefit structure, accelerating and extending the increase in the normal retirement age, and reducing the annual cost-of-living adjustment. For example, it points out that raising the normal retirement age would hit both lower-income and younger workers harder. In addition, current or near-retirees have been hardest hit by the collapse of the housing bubble and the resulting plunge in stock prices. Since they are at or near retirement age, they will have little opportunity to replace their lost wealth.
The CEPR Deficit Calculator (interactive at: http://www.cepr.net/calculators/calc_deficit.html) allows users to see how various policies will affect the national debt burden in 2020. The options presented have appeared in public debates (or should) and would have a substantial impact on the deficit. The calculator allows users to select whatever target they consider appropriate given the various reference points shown.
Early this year, in The Budget Deficit Scare Story and the Great Recession (attached), CEPR attempted to correct many of the misperceptions about the deficit that have brought the issue to the center of national debate. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the report highlights the policies necessary to bring the economy back to health.
Late last year, in Taming the Deficit: Saving Our Children from Themselves (attached) , CEPR used data from the CBO Long-Term Budget Outlook and the authors' calculations to show that the driving force behind the deficit is our broken health care system and that this should be the focus of the debate about future federal budget deficits.
Finally, CEPR's Health Care Budget Deficit Calculator (interactive at: http://www.cepr.net/calculators/hc/hc-calculator.html) shows that if the U.S. can get health care costs under control, our budget deficits will not rise uncontrollably in the future. But if we fail to contain health care costs, then it will be almost impossible to prevent exploding future budget deficits. The Calculator lets users see what projected U.S. budget deficits would be if we had the same per person health care costs as any of the countries listed, all of which enjoy longer life expectancies than the U.S.