A call for cuts in Social Security
Nation can't afford promised benefits, Greenspan says
BY MARTIN CRUTSINGER The Associated Press: Feb. 26, 2004
WASHINGTON -Federal Reserve Chairman Alan Greenspan, stepping
into the politically charged debate over Social Security, said
country can't afford the retirement benefits promised to baby boomers
and urged Congress to trim them.
He said that unless Congress acts, soaring budget deficits from
out-of-control entitlement programs could lead to a "very debilitating"
rise in interest rates in coming years.
Democratic presidential candidates denounced his proposals, and
President Bush and other Republicans sought to distance themselves from
the Republican Greenspan.
The central bank chairman also repeated his view that Bush's tax
cuts should be made permanent to bolster economic growth. He said the
estimated $1 trillion cost should be paid for, preferably, with spending
cuts so the deficit would not be worsened.
As for specifics on trimming Social Security, Greenspan told the
House Budget Committee that one possibility would be to switch to an
alternative measure of inflation for annual cost-of-living adjustments.
Instead of relying on the Consumer Price index, he suggested switching
to a new chain-weighted CPI that gives lower inflation readings and
thus would mean smaller payment increases.
Greenspan, who turns 78 next week, also suggested tying the
retirement age for full benefits to longer lifespans with the age
continuing to rise. The 65-year age for retiring at full benefits
started increasing last year and now stands at 65 years and four
months. It will increase to 67 over the next two decades and then stop
Greenspan said his comments simply voiced views he has held
since he chaired a blue-ribbon commission two decades ago. But the
remarks set off a political storm.
Democratic front-runner Sen. John Kerry of Massachusetts said
the way to address the deficit was to roll back tax cuts for the
wealthy and “the wrong way to cut the deficit is to cut Social Security
benefits. If I'm president, we're simply not going to do it.”
Sen. John Edwards, D-N.C., called it “an outrage” for Greenspan
to call for cuts in Social Security while at the same time endorsing
making Bush’s tax cuts permanent. Rep. Dennis Kucinich, D-Ohio, went
even further and called for Greenspan to resign as Fed chairman, saying
his comments were “a disgrace.”
But the Alliance for Worker Retirement Security, a coalition of
40 employer groups, praised Greenspan for sounding the alarm. “Social
Security's pending crisis can no longer be pushed off to future
generations” said Derrick Max, the group’s executive director.
In his testimony before the Budget Committee, Greenspan said the
current deficit situation, with projected record red ink of $521
billion this year, will worsen dramatically once the 77 million members
of the baby boom generation start becoming eligible for Social Security
benefits in just four years.
He said projections show the country will go from having just
over three workers supporting each retiree to 2.25 workers for every
retiree by 2025.
He said taking action now would mean that people still working
would have time to adjust their retirement savings plans to deal with
smaller Social Security benefits.
Greenspan said at some point the country needed to face the fact that the
government has promised more in entitlement benefits than it can afford
to pay. He said the
problem was even worse for Medicare because it was impossible to
estimate what types of costly medical advances will be available in
He did not
mention that Congress late last year, at Bush’s urging, adopted a new
prescription drug benefit as part of a Medicare overhaul now estimated
to cost $540 billion over the next decade.
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