Greenspan Supports Private Accounts in Social Security Overhaul, Expresses Concerns Over Government Borrowing

Alan Greenspan, the Federal Reserve chairman, has expressed support for individual investment accounts in Social Security, but warned that creating such accounts could lead to trillions of dollars in additional government borrowing. Greenspan's comments, made in testimony to the Senate Banking Committee, give President Bush some support on the private accounts component of his approach to Social Security, but also give ammunition to Democrats who have asserted that establishing investment accounts is unaffordable. Mr. Greenspan urged lawmakers to "start out slowly" and be wary about the trillions of dollars in additional federal borrowing that might be necessary. He also agreed with Democratic lawmakers that private accounts would do nothing in themselves to solve Social Security's long-run financial shortfall or to increase national savings.

Key Takeaways:

• Alan Greenspan, the Federal Reserve chairman, supports individual investment accounts in Social Security, but expressed concerns over increased government borrowing.
• Greenspan warned that creating private accounts could lead to trillions of dollars in additional government borrowing in the next few decades.
• President Bush has put the Social Security overhaul at the top of his domestic agenda, but has had little success pushing it ahead in Congress.
• Some Democrats have suggested that raising the earnings cap is a more attractive alternative than cutting benefits.
• Senator Charles E. Schumer of New York said his fellow Democrats viewed Mr. Bush's statement as "a bit of a ruse" that would probably end with the White House's disavowing any willingness to consider tax increases.
• Vice President Dick Cheney has acknowledged that the costs would be in the trillions of dollars in subsequent decades once the program is fully up and running.
• Mr. Greenspan agreed with Democratic lawmakers that private accounts would do nothing in themselves to solve Social Security's long-run financial shortfall or to increase national savings.
• Mr. Greenspan warned that financial markets might not agree with White House claims that borrowing to pay for "transition costs" of private accounts would have no effect on the United States' long-run indebtedness.
• President Bush has yet to offer a detailed proposal on Social Security, but is already barnstorming the nation with the message that today's system of guaranteed retirement benefits will soon be "bankrupt" and needs to be replaced.

Statistics:

• Trillions of dollars in additional government borrowing in the next few decades.
• $754 billion in borrowing estimated over the next decade by White House officials.
• $4 trillion in total borrowing could exceed over the next several decades.
• 10 years for the transition costs.
• 75 years for the Social Security system to be in solvency.
• 4 percent of earnings subject to the payroll tax can be diverted into private accounts under the plan.
• $90,000 as the current cap on earnings subject to the payroll tax.

Sources:

• "Greenspan Supports Private Accounts in Social Security Overhaul, Expresses Concerns Over Government Borrowing" by The New York Times.
• Senate Banking Committee testimony by Alan Greenspan.
• White House officials.
• Vice President Dick Cheney.
• Senator Charles E. Schumer of New York.
• Senator Paul S. Sarbanes, a Maryland Democrat.