Social Security Status Quo Not Sustainable
November 7, 2003
In a November 6 speech to the Securities Industry Association, Federal Reserve Chairman Alan Greenspan gave an ominous diagnosis of the nation's Social Security system and the impact it will have on the economy if it is not reformed. Matt Moore, Senior Policy Analyst with the National Center for Policy Analysis (NCPA) agreed, and noted the Chairman's comments echo NCPA research.
According to Moore, over the next 15 years 77 million baby boomers will stop paying into the Social Security system and will instead begin to collect benefits, creating a shortfall of more than $25 trillion just for Social Security.
"Barring fundamental reform, by 2018 Social Security will no longer be able to pay all the benefits it has promised," says Moore. "To maintain the current system and pay promised benefits fully, Congress will be forced to choose between raising taxes dramatically or increasing the national debt by more than 600 percent." (See "How Big Is the Federal Government's Debt?")
Among Chairman Greenspan's remarks:
- In just five years the first cohort of the baby-boom generation will reach 62, the earliest age at which they may claim Social Security retirement benefits and the age at which about half of the prospective beneficiaries choose to retire.
- In about 2008, the proportion of the working-age population that will retire is projected to begin escalating; almost surely, the Social Security and Medicare benefits that are promised under current law to future retirees cannot be financed with existing tax rates.
- As the baby-boom generation retires, it could set in motion large deficits with growing interest payments that expand the deficits in future.
- Productivity would have to grow at a rate far in excess of the historical average to fully resolve the long-term financing problems of Social Security and Medicare.
Greenspan says the dimension of the challenge, especially in later years, cannot be underestimated. The one certainty is that the resolution of this situation will require difficult choices, and the future performance of the economy will depend on those choices.
Source: Press Release, "Greenspan: Social Security Status Quo Not Sustainable; Chairman's Remarks Echo NCPA Research," November 6, 2003, National Center for Policy Analysis; based upon Speech, Alan Greenspan, Securities Industry Association, November 6, 2003.
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