FUNDING GAP IN SOCIAL SECURITY NEEDS FIXING
November 5, 2004
President George W. Bush outlined his second term agenda during a news conference yesterday, stressing the need to fundamentally reform Social Security. The blueprint his 2001 bi-partisan commission recommended provides a good starting place to discuss what a reformed system can do and what it may look like, says Matt Moore, senior policy analyst with the National Center for Policy Analysis (NCPA).
- Current retirees and near-retirees would receive benefits as promised under the current system; nothing would change for them.
- Younger workers and future generations would be allowed to divert some of the payroll taxes they already pay to create personal retirement accounts; this would lessen the burden on future taxpayers while securing the financial security of future generations.
An analysis of actuaries at the Social Security Administration found that the second model the commission constructed would require an initial infusion of funds -- about $3 trillion over the next several decades -- but would incur a net savings of about $11 trillion and would set the program on a path to fiscal sustainability.
According to the NCPA, in return for the initial investment:
- Social Security would pay for itself by mid-century,
- All retirees, including younger workers and future generations, would have dependable benefits that the current system cannot promise,
- The current system's $11 trillion funding gap would be bridged without having to increase taxes by 50 percent, cut benefits by a third, cut all other government spending by 20 percent or increase the national debt by $11 trillion -- the only alternatives for maintaining the status quo.
The funding gap is a financial crisis that will only get worse and harder to solve over time, says Moore. Yet great opportunities are never realized by avoiding tough choices.
Source: Matt Moore, "President Bush Highlights Importance of Social Security Reform," National Center for Policy Analysis, November 4, 2004.For more on Social Security: Long Term Crisis
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