NABE Panel: Social Security Reform Felt Unlikely
March 2005

“NABE members, by a narrow margin, now believe that the federal deficit is a larger problem than terrorism, ” says David Wyss, Chief Economist, Standard & Poor's. “Longer term, the costs related to the aging of the population dominate the challenges to sustaining economic growth. However, the panel is doubtful that this Congress will pass needed Social Security reforms.”

Survey Highlights

• The deficit edged out terrorism as the biggest short-term problem facing the U.S. economy, according to 27% of respondents, up from 23% in August. Terrorism was the biggest fear of 24% of respondents, down from 40% last August. Worries about the deficit ran through the survey responses, indicated as the number 3 long-term fear. It was also evident in many of the responses on Social Security and health-care reform.
• In the longer run, the rising elderly population and related health care costs are the primary problems. The rising elderly population and rise in the dependency ratio were the prime long-term worries for 22% of panelists (down from 23%), while 23% focused on health care costs (up from 22%). The federal deficit was chosen by 21% (up from 17%) as the biggest long-term problem, while 16% worry most about the education system.
• The panel split on the greatest strength of the U.S. economy. Thirty-five percent of NABE respondents felt the flexibility of the economy and of the labor force is our biggest strength; the same percentage voted for the strong U.S. technological lead.
• Monetary policy should get tighter. Although 63% of respondents said current monetary policy is about right, 66% said it should tighten over the next six months. There was near-unanimity (97%) that it would tighten.
• Fiscal policy is too loose, according to 76% of respondents. Although nearly 80% thought it should become more restrictive, only 34% thought deficits would actually drop, while 31% expect deficits to increase.
• Social security has serious problems, and should be fixed now, according to 69% of respondents. Only 9% thought the system was in crisis, while 20% felt the problem was overstated, and that we should take our time to fix it. The respondents rated the odds of a major social security reform as only 36% during the next two years.
• Respondents were split on how to reform the system. On a scale of 1 to 5 (5 most desirable), raising the retirement age proved the most popular suggestion, rating 3.7. In order, other favorites were: eliminating the tax cap on contributions (3.4), indexing to the CPI instead of wages (3.2), reducing high-end payments (3.0), requiring state and local employees to participate (3.0). Privatization rated only 2.7, ahead only of raising the tax rate (2.2) and investing the trust fund in other assets (2.6).
• Health-care reform is more critical . Almost all (88%) respondents believe that Medicare and Medicaid cannot survive without major reform. The most popular suggestions were making the high-income elderly pay for more of their own care (3.6 out of 5) and controlling pay-outs to providers (3.2); shifting to a consumption tax (as proposed by Congressman Thomas) was the next most popular, at 2.9. Moving to a national health service (like the United Kingdom) rated only 1.9. Increasing the tax rate (2.4), subsidizing Medicare from general revenues (2.5), and going to a single-payer system (2.6) were also unpopular. The panel was almost equally split on whether social security reform should be done before health care.

Survey Details

Embargoed until
March 21, 2005
12:01 am

The NABE Economic Policy Survey presents the consensus of a panel of 172 members of the National Association for Business Economics. Conducted semiannually, this survey was taken February 28 - March 8, 2005. May be reprinted in whole or in part with credit given to NABE. View the survey results, including complete tabulations, online at www.nabe.com . This is one of three surveys conducted by NABE. The other two are the NABE Outlook and the NABE Industry Survey. David Wyss of Standard & Poor's, Laurie Matthias King of Capital Guardian Trust Company, Kathleen Camilli of Camilli Economics, and John Silvia of Wachovia Bank N.A. conducted the analysis for this report.