In a report this month, the Congressional Budget Office (CBO) concludes that raising the ages of eligibility for Medicare and Social Security benefits would effectively decrease outlays, raise revenues, reduce long-term fiscal imbalances and have a positive economic effect.
The evaluated proposals would raise the Medicare eligibility age from 65 to 67, the full retirement age for Social Security from 67 to 70, and the early eligibility age for Social Security from 62 to 64.
Raising the Medicare eligibility age would decrease Medicare spending by 5 percent, and raising the full retirement age of Social Security would reduce its spending by 13 percent. Raising the early eligibility age for Social Security would have little effect on net Social Security spending.
If legislation were enacted increasing all three eligibility ages, CBO estimates that by 2035, Social Security and Medicare spending would fall by 0.4 percent of GDP, and federal revenues would rise by about half a percent of GDP. Deficits would be decreased by almost 1 percent of GDP in 2035.
By providing an incentive for people to work longer, the proposals would also have a positive effect on the economy. If all three proposals were enacted, the labor force and GDP would be 2 percent larger by 2035.
As the $15 trillion national debt continues to grow, efforts to enact fiscally sustainable policies must address the structural imbalance between entitlement spending and revenues. CBO’s report is a reminder that raising the eligibility ages is one option that should seriously be considered.