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Debate Social Security Now

February 27, 2004

Federal Reserve Chairman Alan Greenspan has a knack for jump-starting debates about the economy. In 1996, he memorably described an overvalued stock market as suffering from "irrational exuberance," infuriating the Clinton White House. On Wednesday, he did it again by urging Congress to trim -- not slash -- Social Security and Medicare benefits "as soon as possible" to help curb a federal budget deficit expected to reach $521 billion annually in 2005.

It took years for the stock market bubble to pop, but lawmakers can't wait that long to address a deficit projected to increase by $2.4 trillion over the next decade -- and by $5 trillion if President Bush's tax cuts are made permanent. By 2009, the annual interest payment on the debt will be $7,074 for every family.

What shocked people about Greenspan's speech was that he defended the White House's huge tax cuts for the wealthy even as he described ways to reduce Social Security benefits. The juxtaposition pulled the deficit and Social Security problems squarely into the national debate in an election year, right where these issues should be.

Greenspan's larger message was on target: The retirement of the 77 million baby boomers, starting in 2008 when the first of them turn 62, will overwhelm Social Security if nothing is done.

The issue is entwined with the growing deficit because Social Security funds, currently in the black, are basically used to finance the deficit, an action that helps dampen interest rates. Whether "doing something" should at least involve delaying tax cuts wasn't on Greenspan's agenda, but it is certainly on the political table.

Like many of its beneficiaries, the Social Security program, which was started during the Depression, has passed the 65-year mark and is showing signs of wear and tear. When it was born, about 40 workers paid in to finance one retiree; today the ratio has dropped to 3 to 1.

The suggestions that Greenspan made, lowering cost-of-living increases and speeding up the move to a full retirement age of 67, are not new, and they merit discussion. But even small cuts can have large effects on the 31% of beneficiaries who rely on Social Security for 90% or more of their income in retirement.

If tax cuts are made permanent, as Bush demands, the top 1% of earners would by 2011 receive an average $62,000 annual benefit, according to an Urban Policy Institute-Brookings Institution study. The current average Social Security benefit is $922 a month.

Social Security needs changes in order to save itself. But it shouldn't bear the burden of helping reduce a deficit produced by war and by diverting trillions of dollars of federal revenue to the wealthy.

Greenspan has joined the two issues. Let the presidential candidates now find a way to tease them apart.

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