WASHINGTON -- In a full-page statement in this Sunday's New York Times (January 9, 2005), bipartisan leaders of The Concord Coalition urge Congress and the President to “confront the hard choices that a meaningful Social Security reform plan requires” and to “reject both the ‘do nothing' approach and the ‘free lunch' plans that rely on substantial long-term borrowing to appear painless.”
The statement is signed by Concord Coalition Co-Chairs, Warren B. Rudman and Bob Kerrey; Concord President, Peter G. Peterson; and Members of The Concord Coalition Board of Directors, Sam Nunn, Paul Volcker, Robert Rubin, Charles A. Bowsher, and Donald B. Marron.
Excerpts from the statement follow:
“The basic case for reform is a matter of arithmetic, not ideology. Well within the lifetime of America's baby boomers, the current system faces a growing gap between what it promises in benefits and what we are setting aside to pay for it. Doing nothing to address this problem will eventually result in steep tax hikes, deep spending cuts, or massive borrowing from the public.
“Ensuring a more sustainable system will require change, meaning that someone is going to have to give up something - either in the form of higher contributions, lower benefits or a combination of both. No Social Security reform will succeed unless this fact is acknowledged up front.
“One reform idea that has received much attention lately is establishing personally owned accounts and ‘funding' them with borrowed money. Simply funding personal accounts with further borrowing, and not with new contributions or contemporaneous benefit cuts, raises many concerns:
It would not add to national savings. A fundamental goal of reform should be to improve national savings. Social Security reform that relies on deficit financing will not boost net national savings, and may even result in lower savings if households respond to the new personal accounts by saving less in other areas. Without additional savings, any gain for the Social Security system must come at the expense of the rest of the budget, the economy, and future generations.
It would worsen the already precarious fiscal outlook. The 10-year cost of roughly $2 trillion would come on top of the $5 trillion deficit that appears likely if current fiscal policies are continued. Yet the greater fiscal danger with most such plans is that they require additional borrowing for decades to come. Official projections already indicate that current fiscal policies are unsustainable and the new deficits would only make the problem worse. Savings programmed for the 2050s won't be enough to prevent us from going over the cliff well before that time.
It would send a dangerous signal to the markets that we are not taking our fiscal problems seriously. If we ‘pay for' Social Security reform by running up the debt further, rather than making hard choices, it would signal to increasingly wary financial markets that Washington has no intention of doing what is necessary to get its fiscal house in order. This would increase the risks of a so-called ‘hard landing' such as a spike in interest rates, rising inflation and a plunging dollar. Promises that all the new debt will be paid back starting in about 50 years are unlikely to satisfy the concerns of those who are watching to see what Washington does now to improve its fiscal position. If markets looked out 50 years, current interest rates would be through the roof.
“Because the trade-offs that genuine reform requires can appear painful, many leaders try to find excuses for not confronting the hard choices. Yet the truth is clear. Social Security reform involves real resource trade-offs. It's time to get serious about reform--and face up to the hard choices.”
The full text of the statement is available in PDF format on The Concord Coalition's website, /issues/socsec/old-doc/050109nytad.pdf
(Requires Adobe Acrobat Reader).
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