Jobs, Taxes & Benefits

WomenMatter will continuously post updates on all this and other issues as we monitor the continuing philosophical and practical debates nationwide. Please check back often for updates. Past updates are available for reference on the Jobs, Taxes & Benefits Archives page.

Greenspan’s Plan: Cut Benefits to Balance the Budget

Alan Greenspan sent a shock through Capitol Hill when he touched the third rail of politics on Wednesday, February 25, 2004. Greenspan, the Federal Reserve Chairman, suggested cutting Social Security and other entitlement benefits in order to decrease the national debt.

The notion of cutting benefits is unpopular no matter what, but the suggestion is downright flammable during an election year. The Democratic candidates criticized immediately, insinuating that the Bush administration and Greenspan are reverse-Robin Hoods.

Party responses

From the Democrats’ point of view, Greenspan’s policy would steel from the poor and give to the rich. Cutting benefits would disproportionately damage lower income Americans, and making tax cuts permanent – the other part of the plan – would aid the wealthy.

Greenspan disagrees. He celebrates the tax cuts, claiming they are responsible for the recent economic turnaround. Bush and fellow Republicans were eager to call attention to Greenspan’s support of the tax policy, though they shied away from the idea of cutting Social Security.

Following Greenspan’s testimony, E. Clay Shaw Jr. (R-Fl), chairman of the Ways and Means Committee Social Security Subcommittee assured voters and seniors that their benefits were secure. President Bush did the same, explaining in a press conference that Social Security should not be altered for people at or near retirement; however, Bush’s statements do not necessarily refute Greenspan’s proposed cuts.

What Greenspan would do

Greenspan’s testimony called attention to Social Security’s impending doom. After the first wave of Baby Boomers retire (the first wave = those born between 1946-1964), the cost of Social Security will begin to exceed its income in payroll taxes. If the program continues as-is, it won’t be able to support itself by 2018.

Clearly, something must be done, and Greenspan’s plan is up for debate. He suggests amending the system for future retirees by recalculating Social Security’s cost-of-living index and raising the age of eligibility to account for longer life spans.

Cost of living

The cost-of-living index measures the upsurge in living costs each year. Social Security benefits are then increased accordingly so that beneficiaries don’t lose purchasing power because of inflation.

Greenspan wants to compute these costs using the "chained" Consumer Price Index instead of the regular Consumer Price Index (CPI). The chained CPI is different from the good-ol’-fashioned CPI because it accounts for substitutions that consumers might make in response to rising prices (you know, switching to the generic version once your favorite brand gets too expensive).

The Wall Street Journal reports that inflation has averaged 2.1% since 2001 according to the regular CPI, but just 1.8% according to the chained CPI. So, in Greenspan’s plan, the chained CPI results in a lower cost-of-living increase. All of this means that the government pays out less and retirees pay out more.

Question: Is this just an accounting trick or is it fair for government to consider consumers’ spending behavior when calculating cost of living?

Raising the retirement age

Greenspan suggests raising the normal retirement age so that there are fewer retirees on Social Security at a time.

The feasibility of this idea depends greatly on workers’ willingness and ability to labor more years. Another imperative is employers’ readiness to keep older employees. The high pace of the information age must also be considered. Will older workers be willing to update their skills in their final working years?

Question: Are you willing to work longer to decrease the deficit?

Greenspan’s trend

Greenspan probably feels like a broken record. He has been suggesting these reforms to Social Security for years now, since a 1997 speech to Congress at least.

Lawmakers and others who are critical of Greenspan’s plan have yet to offer their own, because it’s easy to draw criticism when proposing changes to Social Security. The program’s dismal future seems to be the elephant in the room.

Break the silence. Discuss this topic with other WomenMatter readers in one of our online forums. Read more about Jobs, Taxes, and Benefits, and when you’re ready, contact your representatives and let them know what you think.

Article Posted on: 3/3/2004

click here to go to next section

return to top