Wednesday, February 25, 2004
Congress is unlikely to take up the issue in an election year.
WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan urged Congress today to deal with the country's escalating budget deficit by cutting benefits for future Social Security retirees rather than raising taxes.
In testimony before the House Budget Committee, Greenspan said the current deficit situation, with a projected record red ink of $521 billion this year, will worsen dramatically once the baby boom generation starts becoming eligible for Social Security benefits in just four years.
He said the prospect of the retirement of 77 million baby boomers will radically change the mix of people working and paying into the Social Security retirement fund and those drawing benefits from the fund.
Urged action soon
"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."
Greenspan, who turns 78 next week, said that the benefits received by current retirees should not be touched but he suggested trimming benefits for future retirees and doing it soon enough so that they could begin making adjustments to their own finances to better prepare for retirement.
But while Greenspan urged urgency, Congress is unlikely to take up the controversial issue of cutting Social Security benefits in an election year.
Greenspan suggested two ways that benefits could be trimmed. He said that the annual cost-of-living adjustments for those receiving benefits could be made using a new version of the Consumer Price Index called the chain-weighted index, which gives lower readings on inflation.
He also said that the age for retirement should be indexed in some way to take into account longer life-spans. He noted that presently the age for being able to get full Social Security benefits is rising from 65 to 67 as one of the changes Congress adopted in the mid-1980s, based on recommendations of a commission Greenspan chaired. In his testimony, Greenspan said Congress should go further and index the retirement age so that it will keep rising.
Spending cuts
As he has in the past, Greenspan called on Congress to reinstitute rules that require any future tax increases to be paid for either by spending cuts or increases in other taxes.
While that would erect a high hurdle to President Bush's call for making his 2001 and 2003 tax cuts permanent, estimated to cost at least $1 trillion over a decade, Greenspan again repeated his belief that spending cuts rather than tax increases were the best way to deal with the exploding deficit.
While not ruling out totally the use of tax increases to deal with at least part of the looming surge in spending on Social Security, Medicare and other entitlement programs, Greenspan urged caution in increasing taxes.
"Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," Greenspan said. "The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side."