Federal Reserve Chairman Bernanke recently warned congress Social Security and entitlement programs can seriously harm the economy if not dealt with. It’s nice to see someone sound the alarm about dangerous consequences if the Social Security mess isn’t cleaned up. In 2017 Social Security heads into a negative cash position — it needs to be fixed now, the longer the wait, the worse the fix will be.
Federal Reserve Chairman Ben Bernanke warned Congress Thursday that the economy could be gravely hurt if Social Security and Medicare aren’t revamped and urged lawmakers to tackle the nation’s thorny fiscal issues sooner rather than later.
“If early and meaningful action is not taken, the U.S. economy could be seriously weakened,” Bernanke said in testimony to the Senate Budget Committee.
Spending on entitlement programs will begin to climb quickly during the next decade, he said. Federal spending for Social Security, Medicare and Medicaid will total about 15 percent of the gross domestic product by 2030, compared to roughly 8 1/2 percent of GDP in 2006, he said.
The problem (in part) is because no Social Security trust fund exists — nothing but IOU’s (the surplus is borrowed by the Federal Government each year). In 2017 Social Security heads into a negative cash flow (when payroll taxes won’t cover benefits). At that point taxes must be increased, benefits reduced, money taken from the general federal budget, or a combination of all three. The longer Congress waits to take action, the more painful the fix will be.
Allow the Social Security web site’s own questions about social security to explain:
Q. Is there really a Social Security trust fund?
A. Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.9 trillion at the beginning of 2006. Social Security received $94 billion in interest from bonds in 2005. However, Social Security is still basically a “pay-as-you-go” system as the $1.9 trillion is a small percent of benefit obligations.
Q. How big is the future problem?
A. Social Security is not sustainable over the long term at present benefit and tax rates without large infusions of additional revenue. There will be a massive and growing shortfall over the 75-year period.
As we’ve said before about Fiscal Responsibility
The most pressing budgetary problem facing the nation comes from entitlement spending — Social Security, welfare, etc. It’s adequately documented the problems these programs have and continued unchecked eventually will bankrupt the country. At some point either massive tax increases are required (which won’t really raise revenue but can be devastating to the economy — see the laffer curve), or massive benefit cuts. There is no free lunch.
In spite of this crisis, Constitutional Conservatives do not call for the elimination of these programs, as it would be unfair to people depending on them and believed in good faith the promises made by the government. However, it is reasonable to limit increases, and limit future benefits to those not already collecting them. The primary function of the Federal Government is national defense — other spending must be secondary …
Fiscal Responsibility is a cornerstone for Constitutional Conservatism. Let’s hope someone finally has the guts to address this issue — and soon.