Political Frenzy Erupts Over Social Security

Greenspan: Cut Social Security!

February 26, 2004

Photo: Federal Reserve Chairman Alan Greenspan testifies before the House Budget Committee on Capitol Hill Wednesday, Feb. 25, 2004, in Washington. Greenspan urged Congress to deal with the country's escalating budget deficit by cutting benefits for future Social Security retirees, warning that if action is not taken, financial markets will in coming years begin pushing long-term interest rates up. (AP Photo/Charles Dharapak)

WASHINGTON  — Federal Reserve Chairman Alan Greenspan touched off a political firestorm on Wednesday, calling once again for benefit cuts in Social Security and Medicare for future retirees.

Greenspan told Congress that soaring budget deficits from out-of-control entitlement programs could lead to a "very debilitating" rise in interest rates and threaten the economy in coming years.

It was not a new position for the central bank chairman, who regularly reiterates the recommendations that are essentially the same ones made by a bipartisan commission on Social Security he headed two decades ago.

But his remarks sparked election-year concerns among politicians in both parties.

The Democratic presidential candidates quickly denounced Greenspan's proposals while President Bush and other Republicans sought to distance themselves from his latest remarks.

Members of the House Budget Committee are already at odds over Bush's economic program, particularly large tax cuts that the president wants to make permanent.

Greenspan told the panel that one possibility would be to switch to an alternative measure of inflation for annual cost-of-living adjustments that would mean smaller annual increases in benefit payments.

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 for people retiring this year. It gradually increases to 67 over the next two decades and then stops rising.

He emphasized that he was not talking about any cuts for people already retired or on the verge of retirement.

Democratic front-runner John Kerry said the way to address the deficit is 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."

Democratic presidential contender John Edwards 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 in an election year, Rep. Clay Shaw, the Republican chairman of the Ways and Means subcommittee in charge of Social Security, said: "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."

William D. Novelli, head of AARP, which represents retirees, said Greenspan's proposals to trim benefits for future retirees "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 again. "Social Security's pending crisis can no longer be pushed off to future generations," said Derrick Max, the group's executive director.

Greenspan noted that projections show the country will go from having just over three workers supporting each retiree on Social Security 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.

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