Federal Reserve Chair Alan Greenspan Asks Congress To Reduce Future Medicare Spending
During a House Budget Committee hearing Wednesday, Federal Reserve Chair Alan Greenspan warned that the federal government "has promised more retirement benefits than it can pay for" and to "avoid damaging the economy in the future," it must consider reducing spending on entitlement programs such as Medicare and Social Security, the Washington Post reports. Greenspan said that he prefers reducing government spending rather than increasing taxes to address the federal budget deficit, according to the Post. He added that he is more concerned about the long-term deficit than the current budget shortfall, expected to reach $521 billion this year. The deficit "will tend to narrow somewhat" in the short term, but it will not be enough to prepare for the expected retirement in coming years of 77 million baby boomers, Greenspan said. As more workers retire, there will be fewer people paying into Social Security and Medicare per beneficiary, the Post reports. Greenspan was speaking for himself and not the Federal Reserve, according to the Post (Henderson, Washington Post, 2/26). In the Medicare hospital trust fund, spending is projected to exceed payroll tax revenues beginning in 2013, according to the Philadelphia Inquirer. Such shortfalls in Medicare and Social Security could drive up interest rates, affecting financial markets and the economy "long before they arrive," the Inquirer reports. Greenspan warned that Medicare could be a greater financial problem than Social Security, saying, "We really do not have a clue about the outlook for Medicare, never have. It's been a remarkably difficult forecasting process" (Moritsugu, Philadelphia Inquirer, 2/26). He suggested gradually raising the eligibility age for Medicare and Social Security, as well as linking cost-of-living increases in Social Security benefits to inflation. He also urged Congress to take action to curtail future spending as soon as possible because it will take several years to "convince financial markets that the actions will be effective," according to the Post (Washington Post, 2/26). Congress is not likely to overhaul entitlement programs this year, some lawmakers said, CongressDaily reports (Cohn, CongressDaily, 2/25).
Greenspan said, "We are overcommitted at this stage. We have been making commitments without focusing on our capability of meeting them" (Philadelphia Inquirer, 2/26). He said, "I believe that a thorough review of our spending commitments -- and at least some adjustment in those commitments -- is necessary for prudent policy." Greenspan has voiced similar opinions previously, but "with an election looming, his comments on Wednesday provoked a much more widespread reaction," according to the New York Times. President Bush said, "I need to see exactly what he said," adding, "My position on Social Security benefits is this: those benefits should not be changed for people at or near retirement" (Andrews, New York Times, 2/26). Rep. E. Clay Shaw (R-Fla.) said that Greenspan's proposals "are not the right answer," adding, "My message to seniors and those nearing retirement: You will receive nothing less than 100% of what you've been promised. Your benefits are safe and secure" (Schatz, Congressional Quarterly Today, 2/25). House Minority Leader Nancy Pelosi (D-Calif.) said in a written statement that Greenspan's comments "dramatize the destructive effects of Republicans' reckless economic policies" (Washington Post, 2/26). Presidential candidate Sen. John Kerry (D-Mass.) said that the government should cut the deficit by reversing tax cuts for the wealthy, not "cut[ting] Social Security benefits." Presidential candidate Sen. John Edwards (D-N.C.) called Greenspan's remarks "an outrage" (Wall Street Journal, 2/26). In a statement, Reps. Charles Rangel (D-N.Y.) and Robert Matsui (D-Calif.) said that Greenspan "has it backwards" (Philadelphia Inquirer, 2/26). AARP CEO Bill Novelli called Greenspan's proposal to cut entitlement program spending "irresponsible" (Chen, Los Angeles Times, 2/26).
The following broadcast programs reported on the Greenspan statement to the House Budget Committee:
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CNN's "News From CNN" on Wednesday reported on the statement. The segment includes comments by Bush (Blitzer, "News From CNN," CNN, 2/26). A transcript of the complete segment is available online.
- NBC's "Nightly News" on Wednesday reported that the cost of the new Medicare law may contribute to the federal budget deficit. The segment includes comments by Greenspan, Bush and Robert Bixby, executive director of the Concord Coalition (Gregory, "Nightly News," NBC, 2/25). The complete segment is available online in Windows Media.
- NPR's "All Things Considered" on Wednesday reported on the statement (Speer, "All Things Considered," NPR, 2/25). The complete segment is available online in RealPlayer.
- NPR's "Morning Edition" on Thursday reported on the statement (Speer, "Morning Edition," NPR, 2/26). The complete segment is available online in RealPlayer.