|
Advanced Search
|
Social Security Reform: One More TimeThe nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. AbstractThere has been much breast-beating lately about future entitlement spending burdens. The out-year liabilities of Social Security seem quite large—$11 trillion in present-value terms. How can the nation ever deal with such major funding problems? While I have offered a specific plan in the past, most notably when I chaired one of the Social Security advisory councils ten years ago, in this paper I focus only on a broader strategy. While the present Social Security system is not by itself terribly far out of long-term actuarial balance, when combined with Medicare, the country is facing major problems in funding projected entitlement spending down the road. The text below is an excerpt from the complete document. Read the full paper in PDF format. Social Security Reform: One More TimeThere has been much breast-beating lately about future entitlement spending burdens. The out-year liabilities of Social Security seem quite large—$11 trillion in present value terms. And Medicare is even worse, with out-year liabilities roughly seven times greater. How can the nation ever deal with such major funding problems? But before we get too gloomy, let's stand back. These out-year liabilities are caused mainly by demographics—birth rates have declined significantly in the United States, as they have in most other countries in the world. Life expectancies have grown significantly here, as they have in most other countries of the world. The combination leads to a growing share of the population in retirement years, here and elsewhere, and to rising out-year entitlement spending burdens. Suppose the converse. If birth rates had not declined, the world would be looking at ever increasing population levels. Even productivity optimists would at some point have to fear rising pressures on finite supplies of world resources, pressures that are much ameliorated with falling birth rates. On the other side of the age spectrum, life expectancies are rising because medical technology has found a way to deal with formerly fatal diseases, and because health systems and the provision of health care are improved. The alternative is not very attractive. Hence the so-called burdens of financing future entitlement spending are really by-products of two very positive trends—falling birth and death rates. Of course these financing burdens will have to be dealt with, but one would think a society could at least provide the funding to accommodate these highly positive trends. Because both Social Security and Medicare are big programs, covering the whole population of certain age groups, and because there are by definition an infinite number of out years, even programs that are not quite in long-term actuarial balance can cumulate to pretty big actuarial present value burdens over an indefinite horizon. Recent data from the report of the Trustees of Social Security and Medicare, shown in table 1, pegged the present value of out-year liabilities over this infinite horizon to be $11 trillion for Social Security, 1.2 percent of GDP cumulated over the same period, and $70 trillion for the various Medicare programs, 7.3 percent of cumulated GDP. These are big deficits, and the normal marginal changes that politicians are fond of will not bring the system into balance. The numbers also suggest that between the two programs Social Security is far the more manageable challenge. Not only is its deficit smaller, but Social Security involves only money, with different groups getting somewhat more or somewhat less. Medicare, by contrast, involves much bigger numbers and the possible rationing of essential health care, raising much more significant philosophical and policy issues. In this paper I will focus mainly on Social Security, the topic of the conference, but since I believe that whatever is done for Social Security should be at least roughly consistent with what is done for Medicare, and mindful of the problems in Medicare, I will make occasional forays into the Medicare domain. The complete paper is available in PDF format. |
 |
HOME
|
TAX TOPICS
|
NUMBERS
|
TAX FACTS
|
LIBRARY
|
BRIEFING BOOK
|
EVENTS
|
LEGISLATION
|
PRESS
|
TAXVOX Blog
|
About Us
 |
 |
by topic
