Jan 20, 2010
The members of the Committee on the Fiscal Future of the United States all agree that major efforts are needed to place the federal budget on a sustainable path. One element that must be addressed as part of any serious deficit reduction effort is Social Security. Indeed, ensuring that Social Security is financially sustainable is central to any plan to put the entire federal budget on a sustainable path.
Social Security benefits represented about 4.3 percent of GDP in 2008, and are projected to reach about 6 percent of GDP by 2035. Over the same period, under current SSA actuarial projections, Social Security taxes will decline by about 10% from the current level of 4.8% of GDP. Unless changes are enacted by Congress, we will see annual shortfalls of somewhere in the range of 1.4% of GDP – certainly not a crisis, but still a major challenge. This is a significant fiscal challenge — not just for the Social Security program but for the U.S. budget as a whole.
The Committee is unanimous in support of changes to ensure long term sustainability of Social Security. Restoring confidence in the program is especially vital now, when other sources of retirement security have been diminished by depletion of house and stock market values. And if action is delayed, the tax increases or benefit reductions, or both, will have to be steeper.
Policymakers have been debating ways to secure Social Security’s future for many years, and the budget implications of various options are well understood. While fiscal stability of Social Security program could be assured in various ways, virtually all experts agree that reform will require either tax increases, reductions in scheduled life-time benefits, or a combination of both. The options discussed in the NAS/NAPA Report all address the program’s finances in the current, long-established framework in which payroll taxes paid by current workers generally pay benefits for retirees. The options outlined in the report would each ensure that the system is sustainable through the standard 75-year projection period, so that revenues and benefits are generally balanced, even 75 years from now.
It must be pointed out that the options presented are just a few combinations of the many changes that have been proposed to the program. The report does not include options to substitute private/individual accounts for part of Social Security, in part because added federal revenues or borrowing would be needed for decades to finance transition costs. In addition, it’s beyond the scope of the report to include details on various proposals under consideration to enhance benefits for vulnerable populations.
While all options presented in the report provide “sustainable solvency”, they present future generations with very different sets of tax and benefit changes – and Committee members hold widely differing views on the options. All present major value choices for the country. At its core, the toughest Social Security question we face as a nation is where to draw the line on our collective responsibilities to one another.
If sustainability is to be achieved solely through changes in benefits, the report makes clear that the future role of Social Security will be much smaller for the vast majority of Americans. If sustainability is to be achieved solely through tax increases, the report makes clear the revenues will have to be raised significantly, and if those revenues are to come primarily from higher income workers, then that group would have to pay substantially higher taxes. The report makes clear that there is no free lunch, and that choices need to be made to assure the financial sustainability of the system as well as the financial security of future generations.
I quote Rudy Penner in his blog entry from last week. It is our hope that our report “…will be a starting point for a respectful and serious public dialogue about the choices and compromises that Americans must make together.” This is certainly true for the entire federal budget, and it is true for Social Security. Let’s get moving and make some tough choices!