Greenspan - Cut Social Security
WASHINGTON -- Federal Reserve chairman Alan Greenspan, stepping into the politically charged debate over Social Security, said Wednesday the 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.
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 rising.
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 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.
Bush said Social Security benefits "should not be changed for people at or near retirement."
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 benefit cuts.
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.
"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we will almost surely be unable to meet unless action is taken," Greenspan said. "For a variety of reasons, that action is better taken as soon as possible."
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 coming years.