Republicans Take the Bait

January 25, 1995

Like hungry trout that find a fly can be a hook, House Republican leaders are snapping eagerly at Federal Reserve chairman Alan Greenspan's reiteration of an old gripe: Government statistics consistently exaggerate inflation rates, thus increasing entitlement payments and tax exemptions based on COLAs, or cost of living adjustments.

For politicians who have vowed there will be no cuts in Social Security benefits or boosts in taxes, Speaker Newt Gingrich and House majority leader Dick Armey may regret their quick embrace of Mr. Greenspan's complaint. Their haste was understandable. Mr. Greenspan had projected that if the Consumer Price Index were not skewed upward the deficit could be cut $150 billion over a five-year period without Congress having to flick a muscle. What an enticement for lawmakers ever on the lookout for painless ways to balance the budget!

Perhaps Mr. Gingrich and Mr. Armey were responding to an irresistible lure. Since Mr. Greenspan is the nation's No. 1 inflation fighter, his complaint about the CPI index reeked with authenticity. For wasn't the Fed chairman opening himself to charges that he has been too quick to raise short-term rates if, as he suggested, the official 2.7 percent inflation rate for 1994 was anywhere from half a point to a point and a half too high?

We would guess Mr. Greenspan would explain that his concern is future, not present, inflation -- that he has to to impose tough monetary policies in order to convince world financial markets U.S. finances are under control.

Actually, it would be a very good thing if the government could come up with statistics that more reliably reflect the multitude of changes constantly coursing through the nation's pulsating economy. For it is not only the public sector that uses the CPI to determine yearly increases in Social Security benefits or personal exemption allowances in tax returns. The private sector uses such figures in setting wage rates and much more.

If Social Security payouts are excessive, this should be a factor in determining how to avoid the bankruptcy of the program's trust fund in 2029. If personal tax exemptions are too high, this is a fair way to boost Treasury revenues and cut deficits.

It is estimated that in the year 2000 Social Security expenditures could be reduced by $27.5 billion and tax revenues increased by $21.4 billion if more accurate CPI figures were used. That's a $55 billion fly that could hook many an unwary politician. Yet, curiously, in biting the Greenspan hook, Congressmen Gingrich and Armey may actually be biting the bullet.

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