Greenspan lends some support to Bush plan for retirement funds

Fed chief cautions change won't help Social Security

February 17, 2005|By Julie Hirschfeld Davis | Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON - Federal Reserve Chairman Alan Greenspan gave a qualified boost to President Bush's proposal for private Social Security retirement accounts yesterday but cautioned that implementing the plan could push interest rates higher.

The accounts would do nothing to shore up Social Security, Greenspan told the Senate Banking Committee, as he urged lawmakers to fix the retirement program, even though that would require "many difficult choices."

"It is risky," Greenspan said of establishing private accounts. But facing tough questions from Democrats, he added that "doing nothing is risky. Doing any other solution to this is risky."

Greenspan, trusted by members of both parties on fiscal matters, counseled a go-slow approach on adding personal accounts to the retirement program, saying it should be done in "a cautious, gradual way."

Lawmakers should enact such changes slowly to "test the waters" on whether borrowing to finance the accounts would raise interest rates, Greenspan said.

Bush wants to phase in the accounts over three years, ultimately making them available to those born in 1950 and later.

The president said for the first time Tuesday that he would consider imposing Social Security taxes on earnings above the current $90,000-a-year limit to help close the $3.7 trillion shortfall facing the program, telling a group of regional reporters that it was one of many options on the table.

Greenspan's comments came as Bush flew to New Hampshire to promote his plan - his eighth such event in two weeks - and members of Congress prepared to return home during a weeklong break, where they might face difficult questions from constituents about changing the popular retirement program.

"I'm going to talk to the American people over and over and over again until the members of Congress recognize we have a problem," Bush told an audience in Portsmouth, N.H., appearing with former Democratic Rep. Timothy J. Penny of Minnesota, a supporter of such retirement accounts. "People expect us to lead on this issue."

Selling the proposal

Party leaders have armed congressional Republicans with elaborate public relations packages - including a video of Bush and a DVD full of charts and talking points - to help sell the president's proposal in town hall meetings next week.

But many Republicans are hesitant to broach the subject with voters, out of fear that Bush is moving too hastily on a problem that has no easy solution. House Speaker Dennis Hastert of Illinois told the Chicago Tribune last week that it would take time before Americans would embrace Social Security changes.

Fewer than 50 of the 232 House Republicans have announced plans to hold events to discuss Social Security, said Greg Crist, a spokesman for the party caucus. He said the actual number was closer to 75, explaining that some lawmakers might not be publicizing their events widely to avoid drawing protesters opposed to overhauling the program.

So far, eight Republican senators, out of 55, have informed their party's leadership that they will hold Social Security events, according to Melissa Seckora, a spokeswoman for the Republican conference.

Sen. Olympia J. Snowe, a Maine Republican, said a Social Security plan does not have to be enacted this year: "We shouldn't rush into it. I don't think there are instantaneous answers to a long-range problem."

Overhauling Social Security "has huge political consequences," said Sen. Rick Santorum, a Pennsylvania Republican who is chairman of the Republican Conference. "You don't rush into this, and you don't try to solve the problem tomorrow."

The president has not offered a proposal for fixing Social Security's long-term problems, made more urgent by the impending retirement of baby boomers.

The program faces financial difficulties starting in 2018, when it will begin paying out more in benefits than it collects in payroll taxes. Actuaries project that problems will intensify in 2042, when the program will no longer be able to cover the full benefits retirees have been promised.

Bush has said he will work with Congress to come up with a solution to Social Security's $3.7 trillion shortfall.

"It's important for me to say to the members of Congress, `If you've got a good idea, bring it forward - there will be no political retribution,'" he said yesterday.

Bush said his role is not "to prescribe the solution" but to tell lawmakers, "We'll work with you. We'll look at all the different options, with the exception of the payroll tax increase."

Unpopular measures

Democrats have assailed Bush for failing to present a plan for closing the funding gap, which will almost certainly require unpopular benefit cuts or tax increases. But some senior Republicans are privately urging Bush to refrain from proposing such details, worried that voters would reject the plan - and blame their representatives - before Congress is able to craft a compromise.

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