Washington—Federal Reserve Chairman Ben Bernanke called Wednesday for urgent reform of Social Security and Medicare, warning that failure to do so soon could lead to dire economic consequences for future generations.
Speaking to the Economic Club of Washington, Bernanke said that projected funding shortfalls for Social Security and Medicare threaten ‘’large and unavoidable’’ fiscal consequences.
Absent action soon, he warned, the nation could be forced to raise taxes sharply, trim retiree benefits, cut deeply into other government programs and run up the national debt—or some combination of all these problems.
Beginning in 2008, the first wave of baby boomers—76 million Americans born between 1946 and 1964—begin taking early retirement. Progressively, there will be a smaller number of active workers available to fund promised benefits to what will be a swelling number of retirees.
To meet promises made under Social Security and Medicare, Bernanke said, taxes would have to rise by about 33 percent. That would take taxes from their current level, 18 percent of the nation’s total output, to about 24 percent of total output in 2030.
If politicians opted to spend less on other federal programs to channel the savings into covering promised retirement benefits, they’d have to cut all other government spending in half, the Fed chairman said.
Bernanke’s long-serving predecessor Alan Greenspan, who retired in January, frequently warned that a fiscal crisis looms because of the impending flood of retirees. Bernanke offered new numbers Wednesday to help frame the coming debate on an issue that politicians frequently dodge.
In a question-and-answer session, Bernanke said a more liberal immigration policy would ease some of the burden of a shrinking workforce. But, he cautioned, it would take annual flows close to 3.5 million immigrants, not today’s 1 million, to adequately replace retiring baby boomers.