Comptroller General David Walker issued the warning Thursday in testimony before the US Senate Special Committee on Aging in which he asserted the Congressional action before then could significantly lessen the severity of needed reforms.
“While the Social Security program does not face an immediate crisis, it does have a $3.7 trillion gap between promised and funded benefits in current dollar terms,” Walker told lawmakers. “This gap is growing rapidly and, given this and other major fiscal challenges, it would be prudent to act sooner rather than later.”
Walker asserted that quicker legislative action would also give lawmakers enough time flexibility to make gradual changes. “Acting soon would also allow changes to be phased in so that individuals who are most likely to be affected, namely younger and future workers, will have time to adjust their retirement planning while helping to avoid related ‘expectation gaps’.”
The head of the US Government Accountability Office (GAO) reminded lawmakers that the Social Security Trust Funds are predicted to be solvent until 2042 with any cash surpluses beginning to drop off in 2008. Within 10 years after that, the program will be taking in less than the cost of benefits – a negative cash flow that Walker warned is likely to accelerate from there.
By 2018, the program will have to begin drawing down its US Treasury securities to help make up budget shortfalls forcing Treasury Department officials to get cash for the redeemed securities through increased taxes, spending cuts and/or more borrowing from the public. “Whatever the mans of financing,” Walker warned, “the shift from positive to negative cash flow will place increased pressure on the federal budget to raise the resources necessary to meet the program’s ongoing costs.”
To bolster his contention that earlier Congressional action would require less drastic efforts to keep the system solvent, Walker testified that immediate action would require a 13% benefit cut or a 15% tax hike while waiting until 2018 would mean a 16% benefit cut or a 21% tax hike.
Finally, Walker warned that the creation of individual accounts allowing younger workers to invest a portion of their Social Security contributions themselves won’t solve the system’s long-term solvency issues alone.
“Achieving sustainable solvency requires, lower benefits or both,” Walker asserted.
The report is here .