Economics

23 Pages 5773 Words

evertheless, the threat to future economic growth remains severe and must be taken very seriously.

Even if the rate of economic growth were not threatened, it is necessary to ask whether a continually rising share of the Federal budget should be transferred to the elderly. Over one-half of the non-interest, civilian budget already goes to people over 65. It is almost inevitable that if there is no reform, Social Security, Medicare, and long-term care will continue to squeeze out other types of expenditure. Defense, education, environment, infrastructure investment, and other types of spending are sure to suffer to varying degrees.

Setting Policy Priorities
The problems that we confront are extremely difficult technically and politically. While programs for the elderly are no longer the third rail of politics, the territory is still extremely treacherous. It is my judgment that although Social Security is a smaller part of the problem than Medicare and Medicaid, it is easier to obtain savings here than in the health programs. The issues are better understood and we seem closer to a consensus. That is not to say that health care reform can be avoided. It just makes sense to start first with the less difficult problem.

In the following testimony, I shall most carefully examine two Social Security reform proposals involving mandated individual accounts - the approach of Martin Feldstein (MF) and that of the CSIS National Commission on Retirement Policy (NCRP) of which I was a part. I shall also look at attempts to achieve similar goals by investing part of the trust fund in equities. I shall then examine differences that occur if the individual accounts are made voluntary as in Senator Moynihan's approach. The analysis will focus on the economic impacts of the various proposals, but it will also briefly consider equity issues. The Cato Institution and the Schieber-Weaver faction of the Advisory Council on Social Security would com...