NCPA - National Center for Policy Analysis


September 27, 2005

The Brooking Institution's "Restoring Fiscal Sanity; 2005: Meeting the Long Run Challenge," considers the fiscal pressures that retiring baby boomers will have on Social Security and other entitlement benefits, yet, it falls short of addressing private solutions such as personal retirement accounts, says John Goodman, president of the National Center for Policy Analysis.

In just three years, baby boomers will begin retiring and drawing government benefits at a rate of about 10,000 per day, says Goodman. The book's editors, Alice M. Rivlin and Isabel Sawhill, acknowledge that the situation will be dire:

  • By 2030, total federal spending will be about 25 percent of gross domestic product due to elderly entitlements, while revenues will be less than 20 percent of gross domestic product (GDP).
  • By 2040, total health care spending will grow from 13.6 percent to 35.2 percent of GDP.

Although the contributors suggest raising the retirement age, progressive price-indexing of benefits, increasing the payroll tax and the cap on wages subject to payroll taxes, they do not consider what 30 other countries are already doing: establishing funded retirement pensions systems as an alternative to the current pay-as-you-go system.

The most interesting of these is Singapore, which has structured its entire economy around the belief that each generation should pay its own way, each family should pay its own way and each individual should pay his or her own way.

Other countries have eliminated their unfunded liability for elderly entitlements by requiring workers to save for their own retirement benefits. The Brookings Institution needs to give this idea a closer look, says Goodman.

Sources: John C. Goodman, Book Review of "Restoring Fiscal Sanity; 2005: Meeting the Long Run Challenge," Business Economics, vol. 40, no. 3, July 2005; and Alice M. Rivlin and Isabel Sawhill, eds., "Restoring Fiscal Sanity; 2005: Meeting the Long Run Challenge," Brookings Institution Press, April 2005.


Browse more articles on Tax and Spending Issues