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Social Security Can Last Forever With Big Benefit
Cuts, Says Congressional Budget Office
CBO Director today presents facts, figures, charts to
House committee
Feb. 9, 2005 – The director of the Congressional
Budget Office said today that Social Security is “sustainable for the
indefinite future” in some form. The bad news is it would require
benefit cuts of 20 to 30 percent to match the declining revenue stream.
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Links to Testimony |
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Today's testimony, with charts, by
director of the Congressional Budget Office is available in
pdf format -
Click Here
He testified earlier on this topic to
the Senate Aging Committe and that, too, is available in pdf
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Click Here
For more stories on Social Security
Reform - Click Here |
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“With benefits reduced annually to match available
revenue (as they will be under current law when the trust funds run
out), the program can be continued or sustained forever. Of course, many
people may not consider a sudden cut in benefits of 20 percent to 30
percent to be desirable policy,” Director Douglas Holtz-Eakin told the
Budget Committee of the House of Representatives.
“In addition, the budgetary demands of bridging the
gap between outlays and revenues in the years before that cut may prove
onerous. But the program is sustainable from a financing perspective,”
he added.
Social Security is the single largest program of
the federal government. This fiscal year, outlays for Social Security
are expected to top $500 billion and account for 23 percent of total
federal spending, he said.
The director said the Congressional Budget Office
projects that Social Security outlays will grow from 4.2 percent of
gross domestic product in 2005 to 6.5 percent in 2050.
“Although that growth is significant, it pales in
comparison with the projected growth of the government’s two big health
programs, Medicare and Medicaid,” he added.
Holtz-Eakin layed out for the committee the expected changes ahead that
will impact the Social Security program.
“In 2008, the leading edge of the baby-boom
generation will become eligible for early retirement benefits. Shortly
thereafter, the annual Social Security surplus —the amount by which the
program’s dedicated revenues exceed benefits paid— will begin to
diminish. That trend will continue until about 2020, when Social
Security’s finances will reach a balance, with the revenues coming into
the system from payroll taxes and taxes on benefits matching the benefit
payments going out.
“Thereafter, outlays for benefits are projected to
exceed the system’s revenues. To pay full benefits, the Social Security
system will eventually have to rely on interest on government bonds held
in its trust funds and ultimately on the redemption of those bonds.
“But where will the Treasury find the money to pay
for the bonds? Will policymakers cut back other spending in the budget?
Will they raise taxes? Or will they borrow more? In the absence of other
changes, the redemption of bonds can continue until the trust funds are
exhausted.
“In the Social Security trustees’ projections, that
happens in 2042; in CBO’s projections, it occurs about a decade later,
largely because CBO projects higher real (inflation-adjusted) interest
rates and slightly lower benefits for men than the trustees do.
“Once the trust funds are exhausted, the program
will no longer have the legal authority to pay full benefits. As a
result, it will have to reduce payments to beneficiaries to match the
amount of revenue coming into the system each year. Although there is
some uncertainty about the size of that reduction, benefits would
probably have to be cut by 20 percent to 30 percent to match the
system’s available revenue
“What is not sustainable is continuing to provide
the present level of scheduled benefits—those based on the benefit
formulas that exist today—given the present financing. Under current
formulas, outlays for scheduled benefits are projected to exceed
available revenues forever after about 2020.That gap cannot be sustained
without continual—and substantial—injections of funds from the rest of
the budget
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