• A fiscal train wreck
A fiscal train wreck
We can’t say that Alan Greenspan delivered a wake-up call Wednesday when he warned that Social Security and Medicare are headed for deep trouble. Alarms have been jangling for years. Congress and the White House prefer to snooze on.
It was the Federal Reserve chairman’s preferred solution that got the headlines. He would cut future benefits and raise the retirement age.
Mr. Greenspan, 77, is secure in his job and certainly doesn’t need his own Social Security. He can afford to speak out. If he were in Congress, the voters would be after him with tar and feathers. But cold numbers support his worry.
Social Security is the covenant between generations. Today’s workers pay for today’s retirees.
When baby boomers start retiring four years from now, there will be more than three workers supporting each retiree. By 2025, that will be down to 2.25 workers per retiree. Today, Social Security and Medicare eat up 7 percent of our gross domestic product. By 2035, the bite will be 12 percent.
When the nation was running a surplus in 2000, there was the prospect of spending down the deficit in time to borrow for the retirement of the boomers. But the recession and Bush’s tax cuts wrecked that approach.
Now one way to pay would be through taxes. But what an increase that would be. “Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base,” Mr. Greenspan said.
We would be shooting our economy in the foot. A back-of-the-envelope calculation shows that taxes eventually would have to rise 22 percent to cover the increase in retirement costs. That’s just not going to happen. And it shouldn’t.
We could follow our current primrose path and simply borrow the money. But this year the government will spend more than $500 billion more than it collects in taxes, and congressional estimates show our national debt growing by 63 percent in the next decade – if the Bush tax cuts expire on schedule, which they won’t. Add the boomers’ retirement to that debt and the you have a formula for high interest rates, economic malaise and a lower standard of living.
What’s left are hard choices. Mr. Greenspan said that “some scrutiny” should be applied to taxes. If that means he favors a tax increase, he’s right. As the economy improves, we should phase out the Bush tax cuts to help deal with the deficit. Mr. Greenspan also calls for restraint in spending. He’s right again.
But none of that will prevent the fiscal train wreck. Mr. Greenspan suggests gradually raising the retirement age to reflect our longer life span.
He also suggests lowering cost-of-living increases for retirees by switching to a lower measure of inflation.
We should listen to an economic sage who is too old and too rich to care about tar and feathers.
St. Louis Post-Dispatch
