Significant changes in fiscal policy are needed to deal preemptively with the costs from low national saving and the risk of a fiscal crisis. The sooner we begin, the better. Scaling back or repealing the tax cuts would be a step in the right direction. We also need to reform Social Security. One recent proposal, designed by Peter Diamond of MIT and Peter Orszag, involves a progressive reform that combines benefit reductions and revenue increases to restore sustainable solvency to Social Security while strengthening its social insurance protections (see Saving Social Security, Brookings 2004). Interestingly, given how much more important Medicare and Medicaid are to the long-term budget-picture, the most important consequence of Social Security reform may be to take the issue off the table, so that policy-makers, analysts, and the public can focus on the real problem -health care.
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