	Social Security Reform Is Part of a Broader Fiscal and Economic Challenge

In my role as lead partner on the audit of the U.S. government’s  consolidated financial statements and the de facto Chief Accountability  Officer of the United States government, I have become increasingly  concerned about the state of our nation’s finances. Our  current path also will increasingly constrain our ability to address emerging  and unexpected budgetary needs. While the nation’s long-term fiscal imbalance grew significantly, the  retirement of the baby boom generation has come closer to becoming a  reality. There are different ways to describe the magnitude of Social Security’s  long-term financing challenge, but they all show a need for program reform  sooner rather than later. Today Social Security spending exceeds federal spending for Medicare and  Medicaid, but that will change. Accordingly, substantive reform of  Social Security and our major health programs remains critical to  recapturing our future fiscal flexibility. If  we did nothing until 2042—the year SSA estimates the Trust Funds will be  exhausted—achieving actuarial balance would require changes in benefits  of 30 percent or changes in taxes of 43 percent. 7.) Although health care spending is the largest driver of the long-term fiscal  outlook, this does not mean that Social Security reform should be  postponed until after health is addressed. Considerations In Assessing Reform Options

As important as financial stability may be for Social Security, it cannot be  the only consideration. Social Security remains the foundation of  the nation’s retirement system. It is also much more than just a retirement  program; it pays benefits to disabled workers and their dependents,  spouses and children of retired workers, and survivors of deceased  workers. Our criteria aim to  balance financial and economic considerations with benefit adequacy and  equity issues and the administrative challenges associated with various  proposals. GAO Framework For Evaluating Reform Proposals

The analytic framework GAO has developed to assess proposals comprises  three basic criteria:
Financing Sustainable Solvency—the extent to which a proposal  achieves sustainable solvency and how it would affect the economy and  the federal budget. Moreover,  issues such as feasibility and cost can, and should, influence policy  choices. Proposals also  differ in the manner in which accounts would be financed, the extent of  choice and flexibility concerning investment options, the way in which  benefits are paid out, and the way the accounts would interact with the  existing Social Security program—individual accounts could serve either  as an addition to or as a replacement for part of the current benefit  structure. Finally, the effort to reform Social Security is occurring as our nation’s  private pension system is also facing serious challenges. In addition, our Social Security challenge is  only part of a much broader fiscal challenge that includes, among other  things, the need to reform Medicare, Medicaid, and our overall health care  system. Furthermore, absent reform, younger workers will face  dramatic benefit reductions or tax increases that will grow over time. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

Social Security is the foundation of the nation's retirement income system, helping to protect the vast majority of American workers and their families from poverty in old age. However, it is much more than a retirement program, providing millions of Americans with disability insurance and survivors' benefits. As the baby boom generation retires and given longer life spans and lower birth rates, Social Security's financing shortfall will grow. The current gap between promised and funded benefits is $3.7 trillion and is growing daily. The Chairman of the House Budget Committee asked GAO to discuss the need for Social Security reform. This testimony addresses the nature of Social Security's long-term financing problem and why it is preferable for Congress to take action sooner rather than later. This testimony also notes the broader context in which reform proposals should be considered and the criteria that GAO has recommended as a basis for analyzing any Social Security reform proposals.

What GAO Found

Although the Social Security system is not in crisis today, it faces a serious and growing solvency and sustainability challenge that is growing as time passes. If we did nothing until 2042, achieving actuarial balance would require a 30-percent reduction in benefits or a 43-percent increase in payroll taxes. Furthermore, Social Security's problems are a subset of our nation's overall fiscal challenge. Absent reform, the nation will ultimately have to choose among escalating federal deficits and debt, huge tax increases and/or dramatic budget cuts. As GAO's long-term budget simulations show, substantive reform of Social Security and our major federal health programs (e.g., Medicare and Medicaid) is critical to saving our fiscal future. Taking action soon would also serve to reduce the amount of change needed to ensure that Social Security is solvent, sustainable, and secure for current and future generations. Acting sooner would also serve to improve the federal government's credibility with the markets and the confidence of the American people in the government's ability to address long-range challenges before they reach crisis proportions. However, financial stability should not be the only consideration when evaluating reform proposals. Other important objectives, such as balancing the adequacy and equity of the benefits structure and various administrative and operational issues need to be considered. Furthermore, any changes to Social Security should be considered in the context of the broader challenges facing our nation, such as the changing nature of the private pension system, escalating health care costs, and the need to reform Medicare and Medicaid.