Federal Reserve Chairman Alan Greenspan said
today what President Clinton and most other politicians have
avoided saying: Any permanent solution to keep Social Security from
going broke will almost certainly require increasing taxes or
In testimony before the Senate Budget Committee, Greenspan also
repeated his criticism of one element of Clinton's plan, having the
government investment around $700 billion of Social Security money
in the stock market.
"Even with Herculean efforts," Greenspan said, he doubted
decisions on investing this money could be insulated from political
On the politically sensitive issue of benefit cuts or tax
increases, Greenspan said the demographics of a huge baby boom
generation retiring and fewer workers left to support retirees
present policy-makers with few choices.
"In all likelihood, these taxes will have to be raised, or
benefits cut, given that the system as a whole is still
significantly underfunded," Greenspan said.
On that point, White House press secretary Joe Lockhart said,
"We could not agree with him more on the fact that we need to do
more. The president has made clear that he needs to work with
Congress in order to reform. In addition to reserving the surplus
and paying down the debt, we need to do more to reform the system.
And we look forward to having that debate with Congress."
Last week in his State of the Union message, Clinton put forward
a major proposal that would reserve about 60 percent of the
government's projected budget surpluses over the next 15 years, an
estimated $4.4 trillion, for shoring up the Social Security system.
Clinton said changes to Social Security will also likely needed,
but has not said what they should be. The president said he
believes deep benefit cuts or increases in the payroll tax rate
will not be necessary, however. Republican leaders in Congress have
also said they want to avoid increasing taxes or reducing retirees'
standard of living.
Greenspan in his prepared testimony made no comments about
current economic conditions. The central bank cut interest rates
three times last fall to keep the U.S. economy from being dragged
into recession by the global financial crisis. But most analysts
expect no further rate cuts unless global financial conditions once
again threaten to destabilize the U.S. economy.
Greenspan's views carry great weight on Capitol Hill, given what
most politicians believe has been his exceptional direction of
monetary policy during the current lengthy period of prosperity.
He is also considered a top authority on Social Security. He
chaired the blue-ribbon commission that recommended the last major
changes to the government's giant benefits program in 1982.
Greenspan praised the main thrust of Clinton's initiative, to
pay down the national debt, but he said a section of the Clinton's
program that would directly invest about $700 billion in the stock
market was flawed.
The administration has argued that decisions on where to invest
this money would be made by an independent board insulated from
political pressures. But Greenspan said he doubted this approach
would work because the large sums of money being talked about would
inevitable lead to pressures from elected officials to have a say
in how that money was being used.
And political decisions on such investments would make the
economy less efficient and ultimately lower Americans' standard of
living, the central banker argues.
Greenspan did praise Clinton's proposal to reserve the bulk of
coming budget surpluses for shoring up Social Security, calling it
a "major step in the right direction" because it would boost
America's low national savings rate. But he warned that the $4.4
trillion in surpluses being projected over the next 15 years are
based on uncertain economic forecasts and might well fall short of
Greenspan said that raising taxes to bolster Social Security may
"prove too burdensome" given that the government's second biggest
social program, Medicare benefits for the elderly, will also need
The Fed chairman did not express a preference for how benefits
could be cut, but he did note several choices raising the
retirement age, reducing payments or lowering the annual
"Considerations such as these should not be taken off the
table," Greenspan said.