Nobody Said It Was Easy: The Aging Baby Boomers

Nobody Said It Was Easy

by Michael D. Tanner

Michael Tanner is director of health and welfare studies at the Cato Institute and editor of Social Security and Its Discontents (2004).

Robert J. Samuelson challenges think tanks to come up with solutions to the "huge budget costs of aging baby boomers."

We thought you'd never ask.

The scholars of the Cato Institute have been writing about the need for entitlement reform for almost three decades. We've called for making government accounting measures more like corporate ones, so that they take full account of future liabilities -- showing tomorrow's taxpayers how much they're really on the hook for.

Social Security already costs workers 12.4 percent of their salaries, and as the number of workers paying benefits per retiree falls, younger workers can expect a rate of return on their money of less than two percent, far below the return from private markets.

Cato's plan would allow workers to invest half of their Social Security payroll taxes -- 6.2 percent -- in private accounts that would give them real wealth in retirement. As Social Security Administration actuaries wrote in a memo to Rep. Jeff Flake (R-Ariz), the plan would restore the system to permanent solvency, and reduce its total unfunded liabilities by more than $6 trillion.

On the medical side, Cato strenuously opposed the Medicare prescription drug benefit, and offered detailed proposals for reforms, including a call for means-testing.

Why not give each senior a voucher with which to purchase health coverage, allowing them to supplement the voucher with their own funds if they want more coverage, and giving more to those with more expensive health conditions?

On Medicaid, Cato would cap spending at current levels and provide block grants to the states, similar to the practices introduced in the 1996 welfare reform.

The trouble is that Americans can push their representatives to increase their entitlement benefits and pass almost all the costs on to future generations. Without significant reform, these entitlements could eventually consume 40 percent of GDP -- more than five times the military budget.

One way or another, entitlement spending will need to be cut. Politically, raising taxes to as necessary to meet future expenses is impossible. As more and more workers suffer under the weight of a broken system, the choice will be to cut benefits, or to cut benefits and provide people with private alternatives.

These alternatives will empower all Americans to do what the wealthy take for granted: make their own decisions about their future, their retirement and their health.

This article appeared in The Washington Post on August 8, 2007.