Opinion Editorial | |
| Thursday, January 29, 1998 | |
Saving Elderly EntitlementsPete du PontFormer Governor of Delaware, is Policy Chairman of the National Center for Policy Analysis |
You may have heard about the survey that found twice as many young people
believing in UFOs as believing they will ever be able to collect Social
Security. The survey result would have been more amusing if there were
not so much substance to those fears about the future of Social Security. Social Security, as it exists today, is on an unsustainable course.
Medicare's future prospects are even worse. Both depend on pay-as-you-go
financing; that is, the taxes collected today are used to pay benefits to
today's retirees. Pay-as-you-go financing just won't work in a world with
a growing number of old people and a shrinking number of taxpaying workers.
And that's the world we live in today. Currently, about 17 percent of the nation's taxable payroll goes to paying
Social Security and both parts of Medicare. When we add in other government
health care programs for the elderly such as the Veterans Administration
hospitals, total government spending for the elderly consumes almost one
out of every five dollars of taxable payroll. That's today, when we have about 3.3 workers for every retiree. (When
the first Social Security check was paid in 1940, there were 42 workers
for every retiree.) But with American women having fewer babies and people
living longer, by the middle of the 21st century we can expect to have only
about one point five to two workers for every retiree. A new study by the National Center for Policy Analysis puts the problem
of elderly entitlements in graphic -- and frightening -- terms, based on the
government's own assumptions. Social Security actuaries make three sets of assumptions -- low-cost (optimistic),
high-cost (pessimistic) and intermediate. If the intermediate assumptions
are correct, the NCPA calculates that in 2045, when today's 20-year-old
is eligible for full benefits under current law, elderly entitlements will
consume twice as much of the taxable payroll as they do today -- more than
40 percent. That means that taxpayers in 2045 will be paying about the same percentage
of their income for elderly entitlements that they pay today in all federal,
state and local taxes. Bear in mind that that's the intermediate forecast. If the pessimistic
assumptions hold true in 2045, it will require two-thirds of all taxable
income to pay for elderly entitlements. That, mind you, is before considering any other taxes for running the
rest of government. Or, for that matter, leaving something for the taxpayer's
own needs. As the NCPA study points out, there is no way any government can collect
that much in taxes. People will avoid or evade paying and the underground
economy will flourish. Applying any budget surplus to saving Social Security, as proposed by
President Clinton, is nothing more than more Washington doubletalk. That
surplus the president referred would already be part of the Social Security
trust fund. The real federal deficit is about $100 billion. The only reason
we appear to be close to a balanced budget is that the federal government
immediately borrows money collected for the trust fund and then counts it
as part of the "unified budget." It is the same as if you earned
$30,000 and then spent $50,000, including $20,000 in credit card debt, and
then proclaimed that your household budget was balanced. Let's not let budget sleight-of-hand distract us from the fact that our
current system of elderly entitlements must be reformed. Other countries
are in the same demographic boat, and some of them such as Britain and Chile
have done something about it. They have turned away from pay-as-you-go
financing and have instituted fully funded retirement systems. Each generation
provides for its own retirement. Systems such as those in Britain and Chile also encourage saving, which
in turn generates higher economic growth. If we truly reform our elderly entitlement system now so that each generation
can provide for its own retirement, we can avoid cutting benefits for the
elderly or raising taxes -- the two approaches that seem to be most attractive
to proponents of patchwork reform. Means testing of benefits won't solve the problems of Social Security
or Medicare. Neither will changing the cost-of-living adjustment . The
United States is going to have to have true reform sooner or later. And
sooner is going to be a lot less painful than later. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |