Social Security
US News and World Report, January 22nd, 2006
The problems with Social Security are not going away. That was the message Federal Reserve Chairman Ben Bernanke delivered
in his testimony this week to the Senate Budget Committee. He points to
a possible quadrupling of the federal budget deficit by 2030–which
sounds like a long time from now but is only 23 years away.
Long-range projections prepared by the CBO vividly portray the
potential effects on the budget of an aging population and rapidly
rising healthcare costs. The CBO has developed projections for a
variety of alternative scenarios, based on different assumptions about
the evolution of spending and taxes. The scenarios produce a wide range
of possible budget outcomes, reflecting the substantial uncertainty
that attends long-range budget projections. However, the outcomes that
appear most likely, in the absence of policy changes, involve rising
budget deficits and increases in the amount of federal debt outstanding
to unprecedented levels. For example, one plausible scenario is based
on the assumptions that (1) federal retirement and health spending will
follow the CBO's intermediate projection; (2) defense spending will
drift down over time as a percentage of GDP; (3) other noninterest
spending will grow roughly in line with GDP; and (4) federal revenues
will remain close to their historical share of GDP–that is, about where
they are today. Under these assumptions, the CBO calculates that, by
2030, the federal budget deficit will approach 9 percent of GDP–more
than four times greater as a share of GDP than the deficit in fiscal
year 2006.
Here is his sobering conclusion:
To summarize, because of demographic changes and rising medical
costs, federal expenditures for entitlement programs are projected to
rise sharply over the next few decades. Dealing with the resulting
fiscal strains will pose difficult choices for the Congress, the
administration, and the American people. However, if early and
meaningful action is not taken, the U.S. economy could be seriously
weakened, with future generations bearing much of the cost. The
decisions the Congress will face will not be easy or simple, but the
benefits of placing the budget on a path that is both sustainable and
meets the nation's long-run needs would be substantial.
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