Social Security Reforms Offer Possibilities, Problems
December 11, 2001
Social Security is expected to start paying out more in benefits than it takes in from payroll taxes by 2016 -- although it could happen as early as 2011.
According to Congressional Budget Office Director Dan Crippen, three possible approaches to preparing for an aging population have generated considerable public attention: paying down the federal debt, creating private retirement accounts and making changes to the benefits or revenues of the current Social Security program -- or some combination of the three. Crippen told the Senate's Special Committee on Aging yesterday that each has pluses and minuses.
- Even paying off all the federal debt would not fully address the pressures created by Social Security, Medicare and Medicaid over the long run -- although it could help the economy grow by giving policy makers more flexibility and easing the burden on an aging population.
- Creating private accounts using government funds would not help the economy grow because it is essentially a money shift to the private sector -- however, it would have the advantage of preventing politicians from dipping into the money in the future.
- Benefit cuts might encourage more people to save more which would stimulate the economy in the long run, and raising payroll taxes might increase national savings if the money wasn't used for other purposes --but payroll tax increases could reduce people's incentive to work.
Although long-term projections of the federal budget and the economy carry huge uncertainties, Crippen said, one thing is clear: the population will age significantly over the next 30 years, and unless policies are changed, spending on the elderly will rise sharply, posing new challenges for the government and the economy.
Source: Dan Crippen, "Social Security: The Challenges of an Aging Population," Congressional Budget Office, December 10, 2001; based on "Social Security, A Primer," September 2001, CBO.
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