Rubin Urges Rejection of Bush Social Security Panel (Update2)
March 3 (Bloomberg) -- Former U.S. Treasury Secretary Robert Rubin urged fellow Democrats to reject President George W. Bush's plan for a bipartisan commission to examine solutions to the mounting costs of Social Security and health care.
Rubin, who served in President Bill Clinton's administration, said Democratic leaders in Congress should instead insist Bush join them in a ``fiscal commission'' to discuss all options for cutting the budget deficit, including rolling back Bush's tax cuts.
``It only makes sense substantively, in my judgment, to get together around this if everything is on the table, including the tax cuts,'' Rubin, now chairman of Citigroup Inc.'s executive committee, said in an interview with Bloomberg to be broadcast tomorrow. ``Otherwise you have a one-sided approach to what is a very large problem.''
Without a fiscal commission, ``it is highly unlikely anything is going to happen'' to head-off the budget crunch, Rubin added.
Most of Bush's tax cuts, enacted in 2001 and 2003, expire at the end of 2010. The president has refused to allow the reductions to lapse and has asked Congress to extend them.
In proposing an entitlements commission in his State of the Union address on Jan. 31, Bush said the coming retirement of U.S. baby boomers will strain the government finances because of increased spending on Social Security, Medicare and Medicaid over the next two decades.
In 2010, the first of the 76 million U.S. baby boomers, representing about 29 percent of the population, turn 65, the traditional age of retirement. The White House predicts the budget deficit for the fiscal year ending Sept. 30 will swell to a record $423 billion.
Retaining Influence
Rubin, who was Treasury secretary between 1995 and 1999, remains the most influential economic adviser to Democratic politicians. He has given money to Democratic Senate campaigns and was an adviser to Senator John F. Kerry, the party's nominee for president in 2004. He was mentioned as a possible successor to Federal Reserve Chairman Alan Greenspan if Kerry won.
When Bush proposed the establishment of private retirement accounts as part of a Social Security overhaul last year, Rubin advised Democrats to avoid responding to what he saw as a fiscally unsound plan. They followed that advice and Bush's plan failed to gain ground.
In a sign of the 67-year-old Rubin's continued influence, Bush took him aside at a private dinner on Jan. 23 in honor of Greenspan to seek the Democrat's help in a bipartisan effort to tackle the budget deficit. Greenspan retired on Jan. 31.
Greenspan's Conduct
Rubin, who worked closely with Greenspan during his tenure as Treasury secretary, voiced no concern about the private paid briefings on the economy that the former Fed chairman has given investors since he left office. ``As far as I can tell, he's handling himself fine,'' Rubin said.
``He's got some really interesting ideas about public policy issues,'' Rubin said in the Feb. 22 interview in New York. ``What he plans to do with that, exactly, I don't know.''
Rubin praised Greenspan's successor, Ben. S. Bernanke, who took the helm of the central bank last month.
``He's a very bright man,'' said Rubin, who joined Citigroup, the biggest U.S. bank, in 1999. ``What you get is a sense of somebody who listens.''
Rubin acknowledged that Bernanke doesn't have a background in financial markets, a characteristic that the former Treasury chief said in August is critical for a Fed chairman. He played down those concerns in the interview.
``In terms of not having that much experience with markets, that will come very quickly,'' he said.
Fed Talent Pool
Bernanke can draw on the experience of colleagues at the Fed should he need to defuse a crisis, Rubin said. Timothy Geithner, president of the New York Fed, was one of Treasury's key international officials during 1997 and 1998, when currencies collapsed, spurring recessions in emerging markets from Indonesia to Russia.
Rubin warned in a speech last August to the Kansas City Fed's annual symposium at Jackson Hole, Wyoming, that the new chairman may face difficulties, partly because of the record budget and trade deficits.
``An equilibrium based on imbalances seems to me unsustainable,'' he said Feb. 8 in a speech at a conference in Houston sponsored by Cambridge Energy Research Association Inc.
``At some point, the markets may begin to fear fiscal disarray,'' Rubin said in the interview. ``At that point you could have very sharp reactions in both the bond market and the currency market.''
Widening Deficit
The U.S. trade shortfall widened to an all-time high of $726 billion last year. The deficit accounted for 5.8 percent of gross domestic product, up from 1.3 percent a decade earlier.
Rubin described the current state of the U.S. economy as ``good'' in terms of growth. The economy grew 3.5 percent last year after expanding by 4.2 percent in 2004.
He noted, though, that after taking inflation into account, average family income has been stagnant. ``For a lot of people, the economy does not feel good,'' he said.
He advocated a range of policies to tackle income inequality, including providing ``quality'' education and health care for the entire population.
``One thing you don't do is to put in place tax cuts of the kind that we've done that very heavily favor the most affluent, who are already doing best in our society,'' he said.
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