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 2030which 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 GDPthat is, about where they are today. Under these assumptions, the CBO calculates that, by 2030, the federal budget deficit will approach 9 percent of GDPmore 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.
In stark contrast are the words of Sen. Max Baucus, chairman of the Finance Committee, which has jurisdiction over Social Security. Here's an account of a speech he delivered in his hometown of Helena, Mont. Excerpts:
"I'm the lead guy on this end, the person in charge of preventing privatization, and I love it," Baucus told a crowd of several dozen seniors at an AARP-sponsored event at UM-Helena commemorating 70 years of the Social Security program. "I've never had so much fun fighting for something that's right. This is one of the biggest battles I've confronted in all the years I've been in Congress ...
"Sure, it faces long-term solvency questions," Baucus said. "But Social Security will be there for Americans for the next 50 years, so we should not be frightened into believing we need to privatize it just to save Social Security."
Quite a difference in attitudes, eh?