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Greenspan endorses private accounts Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000103&sid=aHs5qbQgzLu4&refer=ushttp://www.bloomberg.com/apps/news?pid=10000103&sid=aHs5qbQgzLu4&refer=us
Greenspan Social Security Comments Fuel Both GOP, Democrats
Feb. 17 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan yesterday provided something for everyone in the Social Security debate, endorsing the private accounts Republicans want while buttressing Democratic arguments about deficit-busting dangers.
In his testimony to the Senate Banking Committee, Greenspan praised private accounts, which President George W. Bush has made the centerpiece of his approach. He didn't take sides on the question of whether such accounts should partially replace the existing system, as Bush wants, or should be added on top of it, the preference of some Democrats.
His testimony didn't give Republicans what they needed to win support for their vision of the program's future, said Rudolph Penner, a senior fellow at the Washington-based Urban Institute, who supports the concept.
``The president's precise proposal is in so much trouble I would doubt Greenspan could rescue it,'' Penner said. ``Greenspan may have advanced the concept of individual accounts as a very general philosophical proposition. But I doubt if his words were sufficient to put across the precise design of the accounts the president has put on the street.''
The issue will be joined again today as Greenspan, 78, appears before the House Financial Services Committee. Next week, lawmakers will fan out across the U.S. during the congressional recess to try to convert constituents at town meetings.
An NBC News/Wall Street Journal poll released yesterday showed 51 percent of those surveyed considered it a bad idea to let workers invest Social Security payroll taxes in the stock market; 40 percent favored the idea. Hart/McInturff conducted the poll of 1,008 adults from Feb. 10-14. The margin of error was plus or minus 3.1 percentage points.
Greenspan's Help
Senator Mike Crapo, an Idaho Republican, said Greenspan's testimony helped by defining the future fiscal problems the Social Security system faces and by agreeing that accounts should be part of the solution.
``He's giving a lot of support to the GOP, and ultimately you'll see people across this country come together in support of it once they understand the details of all the arguments,'' said Crapo, a member of the Senate Banking Committee, in an interview.
Greenspan headed a 1980s panel on the Social Security system. He joined the Fed in 1987 and will leave next year when his non-renewable term as a governor ends.
In his testimony, Greenspan emphasized the merits of allowing survivors to inherit personal accounts when a beneficiary dies.
`Highly Desirable'
``When you have assets which you own, which you can bequeath to your children and which have your name on it, I think that is a highly desirable thing because you give wealth to lower- and middle-income people,'' Greenspan said. ``I can conceive of these being extraordinarily popular accounts, and if they are, it can be a very important addition to our society.''
Greenspan said the accounts should be phased in so markets don't overreact and drive up interest rates in response to increased government borrowing that might be necessary. A panel appointed by Bush in 2001 estimated that the kind of accounts the president favors could add $1 trillion to $2 trillion to the federal deficit over a decade.
``If we were to go forward in a large way and we were wrong, it would be creating more difficulties than I would imagine,'' Greenspan said.
Easing Concern
Greenspan's caution should ease concerns among Americans and lawmakers, said Representative Richard Baker, a Louisiana Republican and member of the financial services panel. ``I am hoping Greenspan's comments will help to assure people that we are moving slowly and the changes we make will only affect those who choose to participate voluntarily,'' Baker said.
Democrats said Greenspan's proposal to phase in the plan was a warning about the deficit, which is projected to reach a record $427 billion this year.
``The fact that he said to do them cautiously should be a sign flashing on and off in front of the president and in front of the Congress,'' Senator Charles Schumer, a New York Democrat, told reporters. ``He knows that to do the private accounts in a way that the president's talking about it would make things even worse in terms of the deficit.''
Impact on Savings
Democrats said Greenspan hurt Bush's argument by admitting the accounts wouldn't cure the future fiscal shortfall in Social Security, which will begin paying out more than it takes in by 2018. Greenspan also said borrowing to pay set-up costs wouldn't improve U.S. savings.
Democrats played down the chairman's endorsement and said the accounts' price tag was too high in a time of widening federal budget deficits.
``We know the chairman has always been, in theory at least, in an academic sense, in favor of private accounts,'' said Senator Paul Sarbanes of Maryland, the senior Democrat on the Banking Committee, in an interview. ``That's not a new development.''
Sarbanes said Greenspan lacked credibility on fiscal discipline because he didn't object to $1.7 trillion in tax cuts Republicans pushed through in 2001 and 2003, which created record deficits.
Democrats will get some help with the attempts to convince voters when they start the town meetings next week. AARP, the nation's largest senior-citizens lobby and an opponent of Bush's approach, next week will unveil its second print and TV ad campaign on the topic. AARP's chief executive, Bill Novelli, said the latest ad blitz will cost more than its $5 million effort in January.
Last Updated: February 17, 2005 00:05 EST
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