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Greenspan warns of retirement benefit cuts { August 28 2004 } Original Source Link: (May no longer be active)
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/08/28/BUGPF8FOMF1.DTLhttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/08/28/BUGPF8FOMF1.DTL
Greenspan calls for action on retirement deficits
Medicare, Social Security finances shaky, he cautions
- Tom Abate, Chronicle Staff Writer
Saturday, August 28, 2004
Federal Reserve Chairman Alan Greenspan warned Friday that the nation faces "abrupt and painful" choices if policy-makers don't act soon to head off looming insolvencies in Medicare and Social Security.
Greenspan's remarks, delivered at a Fed symposium in Jackson Hole, Wyo., were a repetition of his oft-repeated concern that the retirement of 77 million Baby Boomers could force drastic cuts in benefits, possibly coupled with huge tax increases for future workers.
"If we delay, the adjustments could be abrupt and painful,'' Greenspan said.
Observers said the 78-year-old Fed chairman clearly meant to thrust the sensitive issue into the presidential debate.
"Mr. Greenspan has been urging Congress for years to control the growth of entitlement spending,'' said Haseeb Ahmed, an economist with Economy.com. "That neither the president's nor the challenger's agenda contains any measures to address this issue must be weighing heavily on the chairman's mind. ''
Greenspan's speech even drew praise from a staunch protector of the embattled programs.
Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, said she was pleased Greenspan made clear that Medicare was in the most immediate trouble, and thrilled that he discussed Social Security without hinting that he favored privatizing the program, which she opposes.
"This whole issue ought to be discussed in the campaign, and each of the candidates has about one line on it,'' said Kennelly. "The president says he's for privatization, and Sen. Kerry says he's against it.''
Asked for a reaction to Greenspan's remarks, Jason Furman, director of economic policy for the Kerry campaign, noted that the Fed chairman made a reference to the federal deficit as one factor complicating the retirement conundrum.
"The first step to addressing it (Social Security) is to make the tough choices to restore our fiscal discipline and cut our budget deficit,'' Furman said, adding, "George Bush made the wrong choice, passing tax cuts that cost three times as much as the amount needed to save Social Security.''
Bush campaign spokeswoman Tracey Schmitt addressed Greenspan's comments by observing that her boss "signed into law the biggest improvement in Medicare since its creation'' by phasing in a drug benefit for seniors.
"Kerry was one of two senators to miss the vote on the Medicare bill,'' Schmitt said, adding the president "has been clear that strengthening and protecting Social Security is a priority.''
In his remarks Friday, Greenspan said that, because it's so difficult to cut benefits once they are bestowed, "fiscal policy-makers must be especially vigilant to create new benefits only when their sustainability'' is assured.
Greenspan, a master at choosing words with care, must have realized that this comment amounted to an oblique critique of the new Medicare drug benefit which, though long demanded by senior citizens, will surely add to the cost of an already strained program.
"Medicare faces financial pressure not only from the changing composition of the population but also from the continually increased per-recipient demand for medical services,'' Greenspan said. "Shortfalls in the Medicare program ... will almost surely be larger and much more difficult to eliminate'' than anticipated future deficits in Social Security.
As he has in the past, Greenspan counseled against trying to close future shortfalls in Social Security by boosting taxes because this would probably drive young workers out of the labor force. Instead, he again suggested that as people live longer, the retirement age, already in the process of being boosted from 65 to 67, should be adjusted upward.
That brought a rebuke from Chris Hansen, associate executive director for the American Association of Retired Persons, who issued a statement saying, "Raising the retirement age should not be the starting point of the discussion. ''
Joel Naroff, who runs an economic consulting firm in Pennsylvania, said Greenspan painted a bleak picture. "Budget deficits have to go, and he doesn't like raising payroll taxes, so we must cut spending,'' he said. "That means making hard choices now.''
E-mail Tom Abate at tabate@sfchronicle.com.
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