The 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.
C. Eugene Steuerle is a senior fellow at the Urban Institute, codirector of the Tax Policy Center, and a columnist for Tax Notes Magazine.
Note: This testimony is available in its entirety in the Portable Document Format (PDF).
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to testify on achieving sustainable balance in Social Security. Since Social Security was first enacted, vast changes have occurred in the economy, life expectancy, health care, the physical demands of jobs, the labor force participation of women, and even the age at which one can be considered old. Yet, we often debate Social Security as if the type of system we want in 2080 should be determined by perceptions and measures of society's needs in 1930, or 150 years earlier. Much of my testimony will deal with our increasing inability to protect the young, the truly old, and the vulnerable when Social Security morphs into a middle-age retirement system.
The Social Security debate could and should be part of a larger one in which we engage our fellow citizens in figuring out how to take best advantage of new opportunities created by longer lives and better health. How can we spread the gains from this increased level of well-being and wealth to create a stronger nation with opportunity for all? And how should we share the costs?
Unfortunately, as now scheduled, the legacy we are about to leave our children is a government whose almost sole purpose is to finance our own consumption in retirement. We who are middle-aged or older come nowhere close to paying for the government transfers we are scheduled to receive, especially once health benefits are added in. More important, we plan to pay for them by shrinking almost to oblivion the rest of government that would serve our children and grandchildren.
The impact on the budget is especially large beginning around 2008 because that is when so many start moving from the working-age population into the retired population. Assume merely that Social Security, Medicare, and Medicaid continue on automatic pilot, that interest on the debt is paid, and that as a percentage of GDP existing levels of revenues are allowed to rise only moderately and defense expenditures decline only modestly. Then by about 2015 no revenues are left for anything else—not for justice or transportation or education, not for wage subsidies or education or environmental clean-up or community development, not for the IRS or national parks—not even to turn on the lights in the Capitol. The pressure on the budget is not awaiting some magical date like 2018 or beyond. Social Security and Medicare are already spending much more than the Social Security tax for Social Security and Medicare, and even this accounting does not include all the other programs for the retired and elderly in the budget. The pressure on programs for children and working families is being felt right now, and the fight over the fiscal 2006 budget makes this glaringly apparent.
Clearly, retaining a necessary share of the budget for our children and grandchildren means that we must pare the growth rate in elderly entitlement programs. Nonetheless, I believe that it is possible under existing tax rates to build a Social Security system that would do a better job than the current one at removing poverty (measured by relative living standards) and serving the majority of the population when they are truly old. If we start with that type of base, then we can move onward to the other debates—those over how to increase private retirement saving, how many benefits should be provided to those who are middle-aged, and how much higher benefits need to be for those who are better off.
Note: This testimony is available in its entirety in the Portable Document Format (PDF).
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Disclaimer: The 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.
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