Fed Chief Warns Against Changes in Social Security

Federal Reserve Chairman Alan Greenspan said today that a controversial proposal to cut the Social Security tax would hamper efforts to reduce the federal budget deficit and warned lawmakers not to tinker with the retirement system.

Greenspan said in testimony before the Senate Finance Committee that he also opposes plans to move the retirements benefit program off the federal budget.

“I am concerned that they will ultimately be counterproductive and hamper the efforts needed to meet our longer-term fiscal responsibilities,” he said.

In opposing the proposal by Sen. Daniel Patrick Moynihan (D-N.Y.) to reduce the Social Security tax, the Fed chairman sided with President Bush, who urged Congress in his State of the Union address not to change the system.

“Assuming that benefits evolve according to existing laws--and that Social Security revenues are set aside rather than used to lower other taxes or raise other outlays--the system moves in the direction of actuarial soundness; it confers no windfall gains or unforeseen losses on any particular generation,” Greenspan said.

Moynihan has argued that his proposal would end the charade in which the surplus for Social Security created by payroll taxes makes the federal budget deficit appear far smaller than it actually is.

Greenspan said he is sympathetic to Moynihan’s frustration with the slowness of deficit reduction and the fact that Social Security trust funds are used to mask the size of the deficit, but said, “I regret that I disagree with his solution.”

The proposed tax cut would mainly benefit middle-income Americans. But it would add $55 billion to the fiscal 1991 budget deficit unless other taxes were increased or government spending were cut by that amount.

Greenspan, chairman of a blue-ribbon task force that recommended Social Security reforms adopted in 1983, said Moynihan’s proposal does not address the fundamental problems facing the U.S. economy.