• Imagine you are a Representative in a district where about one half of your constituents are retired or close to retirement, and the other half is between 18 and 55 years old. You are running for re-election in 2018 and your campaign promise is to close the Social Security funding gap without increasing the deficit and without using money out of the discretionary budget.
• You are writing a detailed memo to your constituents where you describe the challenges that Social Security is facing, and what will happen if no policy reforms are undertaken. This should include a description of how Social Security works.
• Lay out your reform proposal. (Design the package by using the Social Security Reformer (aim at 100% closing of gap) http://www.crfb.org/socialsecurityreformer/
• You describe each measure you chose (in your own words), and point out to your constituents who benefits, who is burdened, why you chose these measures (instead of others), and why you think that altogether the package is fair and a good mix.
• Since your opponent in the election is campaigning against your proposal and is promising that if he wins, there will be no cuts in benefits, and no efforts to increase payroll tax revenue, and that the gap will be filled through money out of the discretionary budget, you include a short analysis in the memo to your constituents explaining possible consequences to them of using money from the discretionary budget to finance the social security funding gap, and why you are against that.
• In addition, use the public choice model to reason about
• Why refusing to cut benefits or raise payroll tax revenue is likely going to lead to increasing deficits and debt (in the discretionary budget).
• Who is likely going to win the election.
Did you think of all these points?
Again, the way you approach this is:
Here are the factors that your government should consider when trying to find out whether increasing the deficit/debt is a high or low risk.
For example: If the Interest rates that the government has to pay on treasury bonds are very low, then there is fairly low risk because….
If they are high or increasing, then there may be higher risk because….
DEBT: What are important factors to consider or questions to ask, when you are faced with the decision of whether to increase the deficit?
You should address these points somewhere in your memo. Some could be combined.
Are Interest rates at which the government would be borrowing low or high?
Economic Growth (current and projected), strong? Stagnating? (impact on tax revenue that helps servicing the debt)
Percent of budget spent on interest increasing/decreasing?
Debt to GDP ratio ( Fiscal Space?)
Recession? (is deficit increase only temporary?)
What is the spending for that is financed with the deficit? Does it support future economic growth?
Is demand for treasury bonds strong, or are investors eager to sell them?
Just a few reminders on social security TOPIC
Explain pay as you go
Reasons for funding gap and what will happen over the next few years until trust fund is depleted.
Make sure you have a mix of policies, not just one or two, and that you pick the ones that spread the burdens of your proposal.
In arguing against your opponent, point out what has to happen in order for the gap to filled out of the discretionary budget, and how that will impact your constituents (you can make up scenarios of why you are opposed to increasing the debt, for example you could say you are opposed because the country has already used up all the fiscal space)
Describe what Public Choice Theory says and how that could apply here