NCPA - National Center for Policy Analysis

France and Germany Give Clues to Social Security's Future

March 28, 2003

Having failed to take action to bolster Social Security's financial future, the United States is strolling down a path which ends at the retirement system's implosion. The Social Security trust fund is expected to dry up in 2042.

But it would be politically impossible to let Social Security go under and strand retirees. The system could be rescued by the introduction of private retirement accounts. But unless that option is selected very soon, the payroll tax rate would have to increase by 1.92 percentage points -- which is an actual increase of 13 percent -- right now to keep the system solvent for the next 75 years.

To get some idea of what life with an unreformed Social Security and Medicare system will be like in a few years, Americans have only to look at France and Germany.

Demographically, both are where the United States expects to be in two decades -- with more than 16 percent of their populations over 65.

  • Both, like the United States, have stayed with pay-as-you-go public pension systems.
  • As of 2000, the share of their gross domestic product going to pensions, public health care and other social transfer payments was more than 18 percent -- compared with less than 13 percent in the United States.
  • The result in Germany has been a persistently sluggish economy -- with GDP growth of less than 1 percent for the past several years.
  • While France has a bit more vitality, both economies lag well behind the United States.

Source: Editorial, "Bleak Future," March 28, 2003, Investor's Business Daily.


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