Chairman Alan Greenspan on Social Security & PAYGO:
news.yahoo.com
"If you're going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way," Greenspan told the Senate Banking Committee. The comment was his first on private accounts since Bush made them the top domestic priority of his second term.
Greenspan warned that establishing the investment accounts could have a major effect on interest rates. He did not say what that effect might be, but other economists have said that new borrowing by the government as part of creating the accounts might have the effect of driving up interest rates.
...As did Bush's comments, Greenspan's testimony to the Senate Banking Committee generated debate among those following the president's Social Security initiative.
The Fed chairman is so esteemed as the overseer of the nation's economic well-being that private account supporters and opponents alike regard his stance as crucial to their success.
Greenspan said private accounts by themselves would do nothing to erase the $3.7-trillion shortfall that is estimated over the next 75 years between Social Security's promised benefits and its income from the payroll tax.
Congress must come to grips with that funding gap, he said, regardless of what it decides to do about private accounts.
Greenspan said the ultimate test of a Social Security rescue package was whether it increased national savings. Only with the investment from more saving, he said, could the United States hope to support its growing army of retired people without a sharp decline in the standards of living of all age brackets.
Creating private accounts through more federal borrowing, Greenspan said, would be a wash, with each dollar saved in a private account offset by a dollar borrowed from the public. "Moving to a forced savings account technically does not materially affect net national savings," he said. "It merely moves savings from the government account to a private account."
February 17, 2005
Greenspan Won't Say Social Security in Crisis
By REUTERS
Filed at 12:02 p.m. ET
nytimes.com
WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. Social Security retirement program is in serious trouble, but avoided saying it was in ``crisis'' -- as President Bush has charged.
In response to a question from the House of Representatives Financial Services Committee about why the system was in crisis, Greenspan began to answer: ``The crisis today is largely because...''
But a congressman interrupted to ask: ``You agree with the president it is a crisis, today?''
Greenspan then rephrased his reply.
``The word crisis depends on in what terms. That we have a very serious problem with the existing structure is what I would stipulate. The terms of how you describe it are far less important than defining what it is,'' he said.
He also stood by his support for the president's tax cuts and said he supported the elimination of double taxation on dividends, but said such tax cuts should be accompanied by ``pay as you go'' rules to limit spending.
``I stipulated my support (for tax cuts) was in the context of a PAYGO rule, which had been allowed to lapse at this point. So if I were voting -- but I don't vote -- I would have voted to take other actions to offset (the tax cuts), because I thought that that particular form of tax cut was important,'' Greenspan said
``I still support the elimination, the partial elimination on double taxation of dividends, but I do it in the context of a full PAYGO system,'' he said.
Until 2002, Congress had in place pay-as-you-go budget rules that required all new spending proposals to be paid for with either tax increases or other spending cuts. But lawmakers allowed the so-called PAYGO rules to expire three years ago.
Copyright 2005 Reuters Ltd. |
