Bernanke Says Entitlement Reforms Needed Soon
Federal Reserve Chair Ben Bernanke on Wednesday said that Medicare and Social Security need to be reformed in order to reduce the financial burden that will emerge when 78 million baby boomers reach retirement age, the AP/Lexington Herald-Leader reports. Bernanke, addressing the Economic Club of Washington, said the nation should prioritize reform of "our unsustainable entitlement programs," adding, "The imperative to undertake reform earlier rather than later is great" (Aversa, AP/Lexington Herald-Leader, 10/5).
The "longer the delay, the heavier the burden" on future generations, Bernanke said (Koffler, CongressDaily, 10/4). Bernanke added that delayed reform might force lawmakers to fund entitlements by raising taxes sharply, cutting retirement benefits, cutting deeply into other government programs or carrying a larger national debt -- or a combination of all four. Taxes would need to be increased by about 33% by 2030 in order to meet all promises made under Medicare and Social Security, Bernanke said. He said that if lawmakers instead decided to fund Medicare and Social Security by cutting other federal programs, they would have to cut spending on all other programs by 50% (Hall, McClatchy/Miami Herald, 10/5).
Bernanke did not make specific recommendations for reforming entitlement programs, "but he suggested Congress adopt measures that encourage older people to stay in the workforce and improve education to make the economy more productive," USA Today reports (Kirchhoff, USA Today, 10/5). Bernanke said that if the current savings rate does not change, future generations of workers would be forced to consume 14% less in order to pay for entitlement programs.
Bernanke recommended that U.S. residents cut current consumption by 4% and put that money into savings in order to grow the economy. Bernanke also said that increasing immigration levels would help offset the loss of retiring workers, but he added that immigration would need to rise from the current 1 million per year to 3.5 million per year to do so (McClatchy/Miami Herald, 10/5).
Joel Prakken, chair of Macroeconomic Advisers, said, "I don't believe Bernanke is telling anybody in my profession something we don't know. The federal government has on the table essentially unsustainable promises to the aging population" (AP/Lexington Herald-Leader, 10/5).
"The decisions that we make over the next few decades will matter greatly for the living standards of our children and grandchildren," Bernanke said (USA Today, 10/5).