REP. ELLEN TAUSCHER came home for spring break wearing the colors of the Blue Dog Democrats and carrying a copy of the coalition budget the group of moderate to conservative Democrats issued in February.
She was seeking a show of support, she told Contra Costa Newspapers' editorial board Tuesday, to demonstrate to her House colleagues that it's possible to talk about Medicare and Social Security "without taking an arrow to the heart."
I'm pleased to oblige. The coalition budget has a lot of good stuff in it, especially compared with President Clinton's phonied-up version, based on the rosy-scenario numbers of the Office of Management and Budget, which defers nearly all of the pain until after Clinton is scheduled to leave office. The coalition budget, relying on tougher Congressional Budget Office figures, is on a "steady glide path" to a $24 billion surplus in 2002, while Clinton's budget that year is $60 billion in the red by CBO's scoring.
What makes it work is an elegant method of computing inflation adjustments called a "flat COLA."
That's not a defizzed soft drink, though it has considerable potential for defizzing the political infighting over whether and how to revise the Consumer Price Index. Federal cost-of-living adjustments, COLAs, are calculated using the CPI, and most economists agree that the CPI overstates inflation, though there's naturally much less agreement on how much or how to fix it. A few economists even think that the CPI, by omitting increased taxes (the price of governmen0 actually understates increases in the cost of living
The coalition budget sidesteps that fight. It sets the percentage of increase in Social Security at .8 percent less than the CPI inflation figure, calculates how many dollars an average Social Security recipient would get with that percentage, and then gives every recipient exactly that many dollars.
People receiving low Social Security benefits would get larger increases than they would under the current system, even though the estimate of inflation is reduced. People in the middle would stay pretty much the same, while the people receiving top benefits would get a smaller percentage increase than they do now.
The Social Security COLA for 1997 was 2.9 percent. Low-wage recipients received a $17 increase in their monthly benefit of $565. People at the maximum benefit level of $1,365 a month received $39 extra.
With the flat COLA, everybody would get $20 a month more. Eminently fair, minimally painless.
Flat rate COLAs would apply to military, federal civilian and railroad retirement programs, and to the indexing provisions in the federal tax code.
This isn't a cure-all. I still think the only eternal salvation for Social Security is a private system in which all employees own and manage their individual retirement funds. Unfortunately, we can't get there from here, at least not any time soon.
The growth in 401 (k) and other self-directed retirement plans will gradually erode resistance to radical change in Social Security. Last year. 22 million people had more than $675 billion in 228,000 plans, and the assets are expected to double in four years. And that's real money, not some mythical "trust fund" that just hides the true size of the deficit.
But we can't afford to neglect the problems of the current system while we wait for that happy day. As almost everybody knows by now, Social Security has made multi-trillion-dollar promises it can't keep, and unless benefits are cut or taxes are raised, it will run out of money around 2029.
The flat COLA would buy us about 12 extra years. It also buys the politicians some maneuvering room to fix the CPI.
Last December, a commission headed by Michael Boskin reported that the CPI was overstating inflation by 1.1 percentage points a year. Over 12 years, that makes the hole in the budget $1 trillion deeper, because the government will pay out more in COLAs and collect less in taxes.
With stakes so enormous, politicians feel intense pressure to fix the CPI so the budget numbers come out right, whether the economics make sense or not. And they have to do it fast to meet the public demand for a balanced budget.
The flat COLA disconnects CPI-fixing from budget-balancing, leaving the CPI intact for the time being but changing how the government responds to it.
In addition the coalition budget guarantees the Bureau of Labor Statistics the money needed to collect better data on prices, and the time to investigate the merits of different ways to adjust the CPI. When the bureau is ready with its recommendations, Congress will be required to vote on them using a fast-track approach, which limits the amount of politically motivated tinkering. Congress would also decide whether to keep or change the 0.8 percent adjustment called for in this budget, which is for fiscal year 1998.
The coalition budget is not a final document. Tauscher described it, fairly enough, as "the terrain over which the discussion can take place." But it's a genuine attempt to return to prudence after decades of profligacy, and it deserves serious attention.
See, no arrows.