The Honorable Robert Portman
338 Russell Senate Office Building
Washington DC, 20510-3506

Dear Senator Portman and Staff:

In an interview about President Obama's State of the Union address, you stated, "I was most encouraged about what he said about entitlement reform and tax reform... [because e]ntitlement programs, as important as they are, are not sustainable in their current form."

With all due respect, the non-partisan Congressional Budget Office projects that even if Congress makes no changes to the program at all, Social Security can pay full scheduled benefits through the year 2034 and over three-quarters of scheduled benefits for the rest of the century. The shortfall that remains is equivalent to only about 0.6 percent of our GDP, which could be easily made up with common-sense solutions, such as applying the Social Security payroll tax to income above $113,700.

Medicare is projected to be able to pay full benefits through the year 2024 and the long-term projected shortfall has decreased by more than two-thirds, due to cost controls put in place by the Affordable Care Act. In addition, the latest projections of Medicare spending from 2011 to 2020 have dropped by $500 billion. The main reason for Medicare's long-term deficits is that we pay twice as much per person for health care as in other developed nations, without better health outcomes to show for it. In fact, if we could get our health care costs down to their levels, for example by allowing the government to negotiate Medicare prescription drug prices, then we'd be looking at budget surpluses, not deficits, in the future.

In contrast, "entitlement reform" plans would cut Social Security and Medicare benefits by large amounts, undermining the security of American retirees. For example, the "chained CPI" that has been proposed for Social Security and other inflation-adjusted programs, including federal income tax brackets, would effectively be a painful benefit cut as well as a tax increase for most Americans.

As you continue to deliberate over Social Security and Medicare, I hope you and your staff will have the opportunity to further review the design and finances of the programs. If you would like any additional background, I would be happy to assist you.

Dean Baker
Co-Director, Center for Economic and Policy Research