Committee for a Responsible Federal Budget
220 1/2 E Street, N.E.
WASHINGTON, D.C. 20002
(202) 547-4484
FAX (202) 547-4476
CRFB@aol.com
Viewpoint on Social Security Reform
The Committee for a Responsible Federal Budget, together with
American Express Financial Advisors, has conducted six Building a
Better Future: An Exercise in Hard Choices meetings around the
country. Almost thirty organizations, representing diverse
constituencies and political perspectives, are participating in
this project. In July 1998, we published an interim report summarizing
the results of the first five meetings. We will host four more
meetings early in 1999, then publish a final report.
Building a Better Future: An Exercise in Hard Choices provides
opportunities for diverse audiences to talk about the future of
Federal programs and policies. It is, in effect, like a deliberative
poll. It focuses on longer-term economic and budget issues, including
Social Security, health care financing, and revenue options. Interim
results indicate that Americans are willing and able to tackle
difficult issues and make hard choices in order to assure a better
future for all. Exercise participants appreciate the opportunity
to learn more about these topics and discuss them with others.
Elected officials appreciate learning what their constituents think
about these issues.
Exercise results. Participants overwhelmingly agree that government
should save short-term surpluses and then balance the budget. Rather
than raise taxes to pay for baby boomer benefits, they prefer to
reform programs. Participants' decisions indicate it may be easier
to reach consensus around Social Security reform than on Medicare
reform. Substantial majorities would include some form of mandatory
individual accounts in addition to, or as partial replacement for,
Social Security. On Medicare, participants split between two very
different approaches: incremental change to the current program,
and switching to a voucher-type system to help older Americans
purchase coverage.
The Committee also has underway a project we call The Graying
of America. In the first phase, we collected and published a wealth
of information about how changing demographics affect public policy.
The second phase report, to be published next year, will discuss
alternative approaches resolving the challenges posed by changing
demographics.
As the debate around these issues begins in earnest, we want to
emphasize four concerns.
- Focus on the right problem to find the right solution. Economic
growth is crucial. Growth becomes much more challenging as the
population ages. The cost of current public commitments to older
Americans will grow more rapidly than the economy. That could place
a greater tax burden on younger generations. Policy debates should
concentrate on redesigning policies and programs to meet the needs
of not only an older, but a much more diverse population in the
21st century. Talking about "saving" Federal programs misses the
point. The key is to promote greater
national saving and investment, which will lead to
higher growth. A stronger, faster growing economy is the one sure
to make an aging society more affordable. A bigger economic pie
will be easier to divide than a smaller one. That is true whether
the public or private sector allocates resources.
- The problem is the problem. Current law benefit commitments to
the elderly are not sustainable at current tax rates. That leaves
only four options, singly or in tandem: taxes must go up; benefits
must be reduced; other government programs face deep cuts; or the
budget will face a dangerous spiral of deficits and growing debt.
It will take a greater share of national economic output to support
a larger retiree population. Policy choices will determine how much
of that cost is born by government and how much by individuals and
families. Changing the composition of investments in the Social
Security Trust Fund will not make promised benefits more affordable.
Mandating deposits to private accounts would shift responsibility
from the government to individuals, but the public must recognize
and accept downside risks and the continuing need for income support
for the poor elderly, the disabled, and survivors. Otherwise,
support for the new system will not last.
- Programs for the elderly do not exist in a vacuum. Social Security
cannot achieve financial stability at the expense of other parts
of the budget or the economy. Older Americans are important; but
government also must serve competing priorities, including: Medicare;
health care assistance and income maintenance for other groups;
agriculture; defense, the conduct of foreign affairs, law enforcement,
and investments in physical and human capital. To meet future
commitments to the elderly and fund other priorities as well, the
Federal government could grow to 25%-30% of GDP. (Many other
democracies have done that.) But that would crowd State and local
government budgets; and voters are not likely to accept a 20%-25%
total tax increase. Deficit financing such government expansion
is not an option. That would do serious damage to the nation's
economy. Thus, we must consider Social Security reform in a broader
economic and budgetary context. Current law earmarks a very
substantial portion of future resources to meet today's priorities.
Policy change can exacerbate or ease that problem. Freeing future
generations from that burden should be a major policy objective.
- Avoid delay. If haste makes waste, delay could prove to be
disastrous. Trust fund solvency is an inadequate and misleading
measure of the urgency for reform. Within a decade, the oldest baby
boomers will begin drawing Social Security retirement checks. Within
fifteen years, annual cash flow to the Social Security system will
turn negative. Medicare already spends more than its dedicated
income-and some options for Social Security reform would aggravate
that problem. There is precious little time to change expectations,
behaviors, or both. If government will provide less generous benefits
to some or all retirees in the future, individuals need to save
more now. They will need time to make plans and alter consumption
and savings patterns. In addition, small programmatic change now
can make huge differences fifteen or twenty years into the future.
The longer we delay, the greater the need for adjustment and the
less appealing the options.
For further information, please contact: Carol Cox Wait or Susan
Tanaka at 202-547-4484.
CO-CHAIRMEN
BILL FRENZEL
TIMOTHY PENNY
SENIOR ADVISORS
HENRY BELLMON
ROEERT N. GIAIMO
PRESIDENT
CAROL COX WAIT
VICE PRESIDENT
SUSAN TANAKA
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DIRECTORS
ROY L. ASH
THOMAS L. ASHLEV
NANCY KASSEBAUM BAKER
JIM COOPER
JAMES EXON
WILLIS GRADISON
WILLIAM H. GRAY, III
ROBERT S. KERR, JR.
JAMES T. LYNN
JAMES T. MCINTYRE, JR.
W. HENSON MODRE
HOWARD MOSKOF
MARNE OBERNAUER, JR.
RUDOLPH G. PENNER
PETER G. PETERSON
LELAND S. PRUSSIA
ROBERT REISCHAUER
JOHN J. RHODES
CHARLES SCHULTZE
JAMES SLATTERV
JOHN W. SNOW
ELMER STAATS
DAVID A. STOCKMAN
ROBERT S. STRAUSS
PAUL A. VOLCKER
CAROL COX WAIT
BETTE ANDERSON WOOD
JOSEPH R. WRIGHT, JR. |
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