I believe that, as the baby boom generation begins to retire in a few years, it will become increasingly important for the nation to boost resources available in the future through greater national saving and enhanced incentives for participation in the labor force. The tax system has the potential to contribute importantly to those goals, and, at a minimum, tax reform should not hinder the achievement of those objectives.

The fundamental fiscal issue is the need to make difficult choices among budget priorities, and this need is becoming ever more pressing in light of the unprecedented number of individuals approaching retirement age.

Because the baby boomers have not yet started to retire in force, we have been in a demographic lull. But this state of relative stability will soon end. In 2008--just three years from now--the leading edge of the baby-boom generation will reach 62, the earliest age at which Social Security retirement benefits can be drawn and the age at which about half of those eligible to claim benefits have been doing so in recent years.

The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate.

Our current, largely pay-as-you go social insurance system worked well given the demographics of the second half of the twentieth century. But as I have argued previously, the system is ill-suited to address the unprecedented shift of population from the workforce to retirement that will start in 2008.

The demographics are inexorable and call for action before the leading edge of baby boomer retirement becomes evident in 2008.

[The retirement of the Baby Boom generation] creates a very significant slowing in the rate of economic growth because, obviously, the rate of growth of the working-age population relative to total goes down.  And even with productivity going at a reasonably good clip, it, under most scenarios, shows the rate of growth in GDP per capita must slow down.

The structure of essentially a pay-as-you-go system, which is what our Social Security system is, which worked exceptionally well for almost 50, 60 years, that system is not well suited to a period in which you do not any longer have significant overall population growth, and therefore a very high ratio of workers to retirees.