[FoRK] Uncle Alan: Deficit must be reduced,
we need Social Security cuts
jbone at place.org
jbone at place.org
Wed Feb 25 09:47:04 PST 2004
There. Somebody said it.
Greenspan warns against deficits
Moves that would cut Social Security benefits among recommendations
made by Fed chief.
February 25, 2004: 12:37 PM EST
NEW YORK (CNN/Money) - Fed Chairman Alan Greenspan warned Congress
Wednesday to take quick action to fix the nation's swollen budget
deficit -- including measures that could cut some future Social
Security payments -- to avoid even bigger problems for the nation's
economy down the road.
The central bank chairman also repeated his assertion that recent tax
cuts should be made permanent and said cutting spending was a better
way to fix the deficit than tax increases.
Greenspan, in remarks for delivery to the House Budget Committee, noted
that the recent surge in the deficit is particularly dangerous, coming
less than a decade before Baby Boomers begin drawing on federal
retirement benefits, putting an ever bigger strain on government
"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 in his remarks. "For a variety of
reasons, that action is better taken as soon as possible."
Greenspan said that, if the demographic shift is permanent -- and
rising longevity makes that a realistic prediction -- then "significant
structural adjustments" to Social Security and Medicare would be
necessary, particularly since Medicare benefits could skyrocket as
medical technology advances.
He proposed some solutions that would reduce future Social Security
benefits to retirees, including raising the ages at which retirement
benefits are paid and changing the inflation measure used to index the
The government should pay the obligations it already owes to people at
or near retirement, he said, adding that any cuts in future retirees'
benefits should be decided as soon as possible so those people can
adjust their retirement plans.
Still, he denied that he was specifically suggesting that Social
Security payments be cut, saying he was merely suggesting better
"technical means" of setting benefits.
In separate remarks to reporters in Washington, President Bush weighed
in on the issue, echoing Greenspan's assertion that near-term Social
Security obligations be met.
"My position on Social Security benefits is this: Those benefits should
not be changed for people at or near retirement," Bush said, Reuters
news agency reported.
Democrats on the House Budget Committee, in their comments to
Greenspan, expressed dismay about the prospect of cutting Social
Security benefits to make cutting taxes easier -- a hint the issue
could heat up ahead of the presidential election.
Greenspan also said greater budget discipline was needed, and he
bemoaned the recent expiration of Congressional rules that enforced
While acknowledging that recent tax cuts had helped worsen the budget
picture, Greenspan said he favored cutting spending rather than raising
taxes, suggesting tax hikes could hurt the economy.
"I am fully aware of the fact that it may not be possible to keep the
tax rate down and still maintain some semblance of deficit control,"
Greenspan said in response to a lawmaker's question. "But ... I would
strongly recommend that the priority of evaluations start with the
expenditure side: what can be constrained, what can be reduced."
$500 billion deficit seen
Earlier this month, President Bush unveiled a budget forecast that
projected a deficit of more than $500 billion, which would be the
biggest ever in dollar terms. As a percentage of gross domestic product
(GDP), it seems likely to be the biggest since the mid-1980s. However,
the forecast did not include hundreds of billions of dollars for other
costs, such as military expenses in Iraq.
Greenspan said the deficit spending of recent years has helped the
economy recover from the 2001 recession, and some economists don't
think the deficit is a short-term problem for the economy.
But Greenspan and other economists have warned that, over time,
persistent deficits and high government debt will push interest rates
higher, hurting economic growth and the nation's living standards.
"If no action is taken at all ... we're going to be confronted within a
few years with a marked upward ratcheting of long-term interest rates,
which is very debilitating to long-term economic growth," Greenspan
said in response to a lawmaker's question.
In the short term, Greenspan said, the economy seems to have gathered
strength and that "prospects for sustaining the expansion" are good.
He said household and business balance sheets were stronger, the Fed's
super-low interest-rate target was still "highly accommodative," and
that fiscal stimulus would also help the economy this year, while
productivity would keep inflation low.
Still, he was not particularly bullish about job growth, which has long
been a glaring weak spot in an otherwise healthy economy.
"Overall, the economy has lately made impressive gains in output and
real incomes, although progress in creating jobs has been limited," he
This view seemed unlikely to change market expectations that the
central bank will keep its target for a key short-term interest rate,
already at the lowest level in more than 40 years, unchanged at least
until the summer. Top of page
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