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1 1 (March 2018)

handle is hein.amenin/aeiaaef0001 and id is 1 raw text is: Automatic Adjustments Within Entitlement Programs: A Look at the Swedish Pension Reform Model By James C. Capretta March 2018 The United States has significant fiscal challenges due to population aging. While the finances of all advanced economies are under pressure from similar demographic trends, some countries have responded more aggressively and creatively to the problem than have US political leaders. In 1998, Sweden enacted a reform of its public pension system that combines a defined-contribution approach with a traditional pay-as-you-go financing structure. The new system includes better work incentives and is more transparent to participants. It is also permanently solvent due to provisions that automatically adjust payouts based on shifting demographic and economic factors. No pension system is entirely problem-free or can be replicated easily in a different political context. Nonetheless, US policymakers should examine the Swedish model and consider what they could do to make Social Security more personalized and self-correcting, too. The United States is running large and growing federal budget deficits that are pushing debt up to levels well above the norm in the postwar era. The Congressional Budget Office projects the federal government will begin running deficits exceeding 5 percent of gross domestic product (GDP) each year beginning in 2021 (Hall 2018). By 2047, federal debt will reach 150 percent of GDP (Congressional Budget Office 2017). The primary cause of the government's current and long-term fiscal gap is the rapid growth in spend- ing on major entitlement programs, which has been occurring for many years and will accelerate over the next two decades as the baby-boom generation grows older. The effects of population aging on federal finances can be seen in projections of Social Security tax revenue and benefit payments. The Board of Trustees overseeing the program's financial status reported in 2017 that, under current law, the Social Security trust funds have a projected unfunded lia- bility over the next 75 years of $12.5 trillion (Social Security Board of Trustees 2017). The growing fiscal stress caused by rapidly rising entitlement expenditures has been well-documented, yet US political leaders have failed to take significant action to address the problem. In addition to wanting to avoid the obvious political risks associated with scaling back promised benefits, many policymakers seem genuinely unsure about how to proceed with reform. They might benefit from examining what other countries have done to address their aging-related fiscal challenges. In Europe, Japan, and elsewhere, the shift toward an older demographic profile has been and will be much more pronounced than in the US. Many of these countries, out of necessity,

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