U.S. Economy Faces Long-Term Pressures of Rising Medicare, Social Security Costs, Greenspan Tells Senate Budget Committee

Main Category: Medicare / Medicaid / SCHIP
Article Date: 23 Apr 2005 - 10:00 PDT

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Congress must limit benefits for Medicare and Social Security beneficiaries "sooner rather than later" to stem an "unsustainable path" of increasing deficits, interest rates and borrowing in the federal budget, Federal Reserve Chair Alan Greenspan said Thursday in a... Senate Budget Committee hearing, the New York Times reports (Andrews, New York Times, 4/22). The federal deficit last year was $412 billion and is expected to increase to $427 billion in the fiscal year ending Sept. 30. Social Security and Medicare account for about 8% of the national gross domestic product and are expected to account for 13% of the GDP as more people retire (Hall, Philadelphia Inquirer, 4/22). According to the Times, most of Greenspan's comments focused on the "long-running problems that loom as the nation's baby boomers begin to claim Social Security and Medicare benefits" (New York Times, 4/22). Greenspan said, "I fear that we may have already committed more physical resources to the baby boom generation in its retirement years than our economy has the capacity to deliver," he said CQ HealthBeat, 4/22). He added, "I do not see how we can avoid significant curtailment of the benefits currently promised" (Philadelphia Inquirer, 4/22). He said that he would prefer to see benefits reduced before taxes are raised, adding that he believes raising taxes constricts economic growth. There is "no way you can raise tax rates enough" to cover future spending commitments, Greenspan said (Henderson, Washington Post, 4/22).

Social Security, Medicare
According to the Wall Street Journal, Greenspan "went further than in the past" in calling for cuts to Medicare benefits. He said that means-testing for Medicare benefits is "one of the critical issues" before Congress. Greenspan said, "At the end of the day ... numbers of people ... are going to have very large copayments and probably should" (Ip, Wall Street Journal, 4/22). Greenspan did not "endorse particular cuts," but he "spoke favorably" about extending the age residents are eligible for retirement and changing the formula for setting retirement benefits, the Times reports (New York Times, 4/22). He suggested that legislators create a catastrophic-insurance program for seniors and configure retiree health programs "to be relatively generous to the poor and stingy to the rich," the Inquirer reports (Philadelphia Inquirer, 4/22). He acknowledged that he thought Social Security was a "smaller problem" than Medicare "that could be fixed now and fixed quickly." He added, "I was mistaken."

Tax Cuts
Unless the trend of "rising interest rates and ever-growing interest payments" is reversed, it could "cause the economy to stagnate or worse," Greenspan said (Kirchhoff, USA Today, 4/22). He said, "In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process," Greenspan said (CQ HealthBeat, 4/22). He also acknowledged that tax cuts he supported in 2001 led to policies that helped to increase the deficit, the Post reports. However, he noted that he also advocated, albeit unsuccessfully, a "trigger" mechanism that would have limited tax cuts if certain budget targets were not met. Greenspan said, "We can raise taxes, and I don't deny we probably at the end of the day will do them in order to get an ultimate resolution of this." Senate Budget Committee Chair Judd Gregg (R-N.H.) said, "Both sides of the ledger will have to be looked at. We're going to have to reduce the benefits, and we're going to have to look at revenues" (Washington Post, 4/22).

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