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Social Security Reform and National Saving in an Era of Budget Surpluses

  • Economics


9760-03 BPEA Elmendorf Social Security Reform and National Saving in an Era of Budget Surpluses THE UNEXPECTED EMERGENCE of federal budget surpluses during the late 1990s, combined with official projections that these surpluses will con- tinue for decades to come, has significantly altered fiscal policymaking. Congressional and administration budget proposals now aim to balance the budget exclusive of Social Security, or exclusive of Social Security and Medicare, rather than on an overall, or unified, basis. Some proposals state the goal of paying off the entire stock of federal debt held by the public within a decade and a half. This fiscal bounty has also altered the likely avenues for Social Security and Medicare reform. Traditional options for ensuring the programs’ financial stability—benefit cuts and tax increases—have largely given way to new options focused on using the expected surpluses to prefund future obligations. The future obligations of Social Security and Medicare under current law are large. The projected aging of the population and rising health care spending imply that federal outlays on these programs will nearly double as a share of GDP over the next seventy-five years, from 6.3 percent in 1 D O U G L A S W. E L M E N D O R F Department of the Treasury J E F F R E Y B . L I E B M A N Harvard University We formed our understanding of the issues discussed in this paper through innumerable conversations with David Wilcox, Stephen Goss, and other members of the Clinton admin- istration’s Social Security reform technical working group. We are grateful for comments from Alan Auerbach, Martin Feldstein, William Gale, James Hines, James Horney, Peter Orszag, James Poterba, Matthew Shapiro, David Skilling, Steve Zeldes, and other partici- pants in the Brookings Panel conference, the Harvard Macroeconomics Seminar, and the National Bureau of Economic Research’s Summer Institute Social Security Working Group. The views expressed are entirely our own and not necess

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