Yesterday President Bush travelled to Iowa to promote his plan to reform social security. Iowa is the 20th state Bush has visited to promote his plan, which the public is receiving with increasing doubt and skepticism. Notably Senator Charles Grassley (R-IA) -- who is also Senate Finance Committee Chairman -- said yesterday that there is room for compromise on the size of private incestment accounts. While President Bush is promoting a plan to divert four percentage points of the payroll tax into a private account, Grassley believes the amount is negotiable, and stated he plans to make compromise an issue when the Finance Committee meets on Social Security this summer. Grassley also noted that even though he is in favor of establishing these accounts, he does not believe they address the problem of social security solvency. He said, "I like personal accounts.... So you have personal accounts as an issue in and of themselves, and then over here, you've got the solvency problem. I want to deal with both of them." The Finance Panel is planning on holding Social Security hearings in April, however no dates have been set yet. For more details on Bush's visit to Iowa and recent Social Security happenings, click here. Also check this Economic Policy Institute briefing paper on how Social Security fits into the Bush budget. The paper, by Max Sawicky, is aptly titled "Collision Course."

The Social Security and Medicare Boards of Trustees released their 2005 annual report which states that "exhaustion" of the trust fund will occur one year earlier than predicted, or in 2041 as opposed to 2042. The report also finds that the amount of tax revenues taken in will fall below the amount the trust fund will pay out starting in 2017. The SSA originally stated this would happen in 2018. Now, they predict that the Social Security program will need to supplement trust fund receipts with general revenues in order to pay be able to pay people full benefits a year earlier. The new report also projects a Social Security shortfall of $4 trillion over the next 75 years. This number is up from the $3.7 trillion figure that economists and politicians have been quoting. Max Sawicky of the Economic Policy Institute notes that the Social Security crisis is not nearly as pressing as the problems being created by our large budget deficits, which were largely due to the administration's tax cuts. These deficits will hinder the government's ability pay for any and all of programs down the road, including Social Security and Medicare. The Congressional Budget Office estimates that in 2042, when the Social Security shortfall will supposedly be 1.37 percent of GDP, the overall budget deficit will be much greater than that --10.7 percent of GDP. Sawicky says, "While the administration tries to fiddle with a relatively small-scale Social Security shortfall, it is creating overall budget deficits that are burning a hole as far as the eye can see. Instead of focusing on a relatively small and distant problem, the administration would better serve the nation by fixing the much bigger and more immediate problem it has created." This is a sentiment echoed widely by economists and policy analysts, many of whom see the large costs of tax cuts and future skyrocketing costs of Medicare as much more serious problems. For more information see this Washington Post article and this report by the Center on Budget and Policy Priorities. For more from the Social Security Administration, click here.

Three items of importance: Last friday the Congressional Budget Office released an updated analysis of the President’s budget for fiscal year 2006, which includes an update of their baseline projections for the 2006-2015 period. In preparing this updated projection, they revised their estimates for Medicare spending. See this document, "Updated Estimates of Spending for Medicare," for details. The CBO's new spending estimate is an increase of almost 50 percent since their last estimate. Also of importance is today's news that the Senate will set a budget reconciliation tax figure of roughly $71 billion, which is down from the approximately $100 billion Bush proposed spending on tax cuts in his FY 06 budget proposal. See this OMB Watcher article for more information. Senate Republican budget writers are now saying this amount should be sufficient to cover the cost of extending expiring tax provisions through the five-year budget window; however this cost does not address the potential high costs of alternative minimum tax reform. These tax cuts, because they will be completed in reconciliation, will be given as instructions to the Finance Committee to undertake. Reconciliation bills are considered under expedited procedures in the Senate and cannot be filibustered. Finally, yesterday Senator Hegel (R-NE) introduced a Social Security bill that is based on the creation of private investment accounts. Like the White House, Hegel supports diverting four percentage points of payroll taxes to fund these accounts. Hegel's plan would allow workers under the age of 45 to divert part of their payroll tax contributions for these accounts. Read a transcript of Hegel's speech on his Social Security proposal here. Senate Minority Whip Durbin (D-IL) reiterated the Democratic leadership's stance on Social Security reform by calling any plan with privatization accounts "non-starters" on Meet the Press the other day. Click here for more information.