Fed chief: Social Security cuts needed ‘as
soon as possible’
Eligibility changes also suggested
Feb. 26, 2004
- Federal Reserve Board Chairman Alan Greenspan told Congress yesterday that it
needs to reduce Social Security benefits "as soon as possible" if the program is
to withstand the waves of baby boomers approaching retirement.
Greenspan said the eligibility age for full Social Security benefits - currently
65 years and four months - may need to be raised further. Under a 1983 law, that
age, is gradually increasing and will reach 67 for those born in 1960 or
He also suggested linking cost-of--living increases in Social
Security benefits to a measure of inflation other than the consumer price index,
a widely followed measure that many economists believe overstates the rise in
overall prices. Using a measure that showed less inflation would cause benefits
to rise more slowly.
recommendations came during congressional testimony that also focused on the
nation's soaring budget deficit, projected to reach $521 billion.
Greenspan warned members of the House Budget Committee that the record deficit
would worsen once the estimated 76 million baby boomers start to become eligible
in 2011 for full Social Security benefits and Medicare.
"This dramatic demographic change is certain to
place enormous demands on our nation's resources, demands we almost surely will
be unable to meet unless action is taken," he said. "I am just basically saying
that we are overcommitted at this stage."
Despite that fear,
Greenspan reiterated that he favored making permanent the Bush administration's
tax cuts, which have an estimated cost of $1.24 trillion over 10 years, and said
he preferred spending cuts to offset any increase in the deficit. Raising taxes,
he said, could "pose significant risks to economic growth and the revenue
Shortly after Greenspan's committee appearance, President Bush
said he opposed any change in benefits "for people at or near
"We ought to have personal savings accounts for younger
workers that would make sure those younger workers receive benefits equal to or
greater than that which is expected," Bush added. He noted that he had not
spoken with Greenspan or been briefed on his comments.
by the Fed chairman introduced into the presidential campaign a volatile issue -
one that traditionally has favored Democrats.
The two leading
contenders for the Democratic presidential nomination quickly rejected any cuts
in Social Security benefits even as they cited Greenspan's testimony in renewing
their demand for a repeal of the Bush tax cuts.
"No matter what was
said in Washington just this morning, the wrong way to cut the deficit is to cut
Social Security benefits," Sen. John Kerry of Massachusetts said.
John Edwards of North Carolina offered "a better way" to cut the deficit. "If we
roll back these tax cuts for the wealthiest Americans, if we institute a new tax
on the wealth of the top 1 percent, and if we take other steps to eliminate
corporate subsidies and wasteful spending, we can reduce the deficit and extend
the life of the Social Security trust fund," he said in a statement.
Although Greenspan and others have issued such warnings and recommendations
before, the timing of his words surprised official Washington as well as
political observers focused on the presidential campaign.
"This is a huge political football, something
that the White House and Republicans don't want to touch," said Stuart
Rothenberg, an independent political analyst.
Underscoring the view
that Congress is not about to touch Greenspan's suggestions, especially in an
election year, Rep. Clay Shaw, the Republican chairman of the Ways and Means
subcommittee in charge of Social Security, said Greenspan was wrong to call for
"My message to seniors and those nearing retirement: You
will receive nothing less than 100 percent of what you've been promised. Your
benefits are safe and secure," Shaw said.
For Bush, the issue is
particularly tricky. He campaigned four years ago as "a reformer with results"
and now regularly identifies himself as someone who did not take office to "pass
on problems" to future generations or future presidents.
Security, created in 1935, is paying out $470 billion in retirement benefits to
more than 46 million elderly and disabled Americans this year. About 20 percent
of the elderly rely on Social Security for all their income, the government
however; the program is headed for insolvency. Initially, about 40 workers paid
Social Security taxes for every one retiree receiving benefits. Today, because
of America's aging population, that ratio is down to three workers per
compensate, the Social Security tax has risen from 2 percent to more than 12
percent. At the current rate, by 2018 Social Security would begin paying
out more in benefits than it collects in taxes, and it would be insolvent by
Complicating the situation is the fact that the average American
family has saved less than $50,000 for retirement, said Ben Stein, spokesman for
the National Retirement Planning Coalition.
Stein told the House
Committee on Education and the Workforce that with 76 million boomers
approaching retirement, and traditional pension plans declining in number,
America faces a "retirement readiness'' crisis.
"A startlingly large
fraction of pre-retirees, perhaps as much as 40 percent, have almost nil savings
for retirement," he added.
William Novelli, head of the AARP, the
nation's largest advocacy group for older Americans, called Greenspan's
recommendation to cut benefits "irresponsible" and said Social Security should
not be used "as a resource for negotiators over the federal budget
Novelli said Greenspan's proposals "would be unfair to
boomers and younger workers, pulling the rug out from under their retirement
But the Alliance for Worker Retirement Security, a
coalition of 40 employer groups, praised Greenspan for sounding the
"Social Security's pending crisis can no longer be pushed off
to future generations," said Derrick Max, the group's executive
Compiled from reports by the Los Angeles Times, The Washington
Post, The Associated Press and Reuters.