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Thursday, February 26, 2004 - Page updated at 12:00 A.M.
Fed chief: Social Security cuts needed 'as soon as possible'
By Seattle Times wire services
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 later.
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.
His 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 base."
Shortly after Greenspan's committee appearance, President Bush said he opposed any change in benefits "for people at or near retirement."
"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.
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.
Sen. 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 benefit cuts.
"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.
Social 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 estimates.
Without intervention, 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 retiree.
To 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 2042.
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 deficit."
Novelli said Greenspan's proposals "would be unfair to boomers and younger workers, pulling the rug out from under their retirement security."
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.
Compiled from reports by the Los Angeles Times, The Washington Post, The Associated Press and Reuters.
Copyright © 2004 The Seattle Times Company
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