US - The longer reform of the social security system is postponed, the more difficult and disruptive change will be in the future, says a new report published by Standard & Poor's.
In the report, chief economist David Wyss warns that although most industrial countries are in worse shape than the US, action is needed now not later.
“It would have been better to make the changes 20 years ago, at the time the Greenspan Commission put forward its reforms and Britain changed its programme,” he writes. “But we can’t go back and make those changes. Now is not as good as earlier, but it is much better than later.”
He added: “The longer we wait the harder the problem is to fix. There are several ways to fix the problem now that are politically possible. If we wait until the social security fund goes broke, there will be no solution other than a drastic increase in tax rates or a drastic cut in benefits. Do we want to leave that problem sitting there for the next generation? Those of us who hope to be alive at that time may not want to risk it.”
On president George W. Bush’s proposal to privatise social security accounts, allowing individuals to put part of their contribution into a private account, Wyss says there is still more need for discussion.
Under the plan, benefits would be reduced proportionately in a way that the system would not have further accrued net liabilities.
“The Administration has said that these changes will not affect anyone currently over the age of 55, and will not affect accrued benefits for those under that age. This leaves an accrued deficit of about half the total, with less funding to cover the benefits.
“In principle, the Administration proposes to cut benefits, but partially offset that by allowing individuals to invest their own funds. The proposal eliminates further increases in the accrued shortfall, but does not close the gap already incurred. Presumably, there will be a proposal to address that as well.”
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