In the 21 years since the Greenspan commission issued its report on Social Security, Congress has done little to strengthen the failing finances of the system. No wonder Alan Greenspan now is losing his patience.
Not until 2000 did Congress begin gradually raising the Social Security retirement age to 67 — a slight modification of the system based on the recommendations of the 1983 National Commission on Social Security Reform, appointed by President Reagan and chaired by Mr. Greenspan.
Because of this long period of relative inaction, the Social Security financial crisis has worsened and threatens both retirement security and economic growth. Proper correction to the system will be a lot more painful now than it would have been if it had been enacted over the past 20 years.
In Feb. 25 testimony to the House Committee on the Budget, Mr. Greenspan once again warned of the looming financial crisis of Social Security and Medicare.
He discouraged raising taxes to bolster Social Security finances, warning about the dire impact to the economy. Instead, he recommended reducing benefits for those not near retirement by changing the cost-of-living index used by Social Security to adjust benefits for inflation, and raising the Social Security retirement age still higher, to correspond with increasing life expectancy.
Since the 1983 panel, Congress has disregarded opportunities to reform the system. Proposals by President Clinton and his successor, President George W. Bush — such as investing some Social Security funds in diversified portfolios, whether managed by the government or partially privatized with individual accounts — were ignored.
Through almost two decades of a booming economy in the 1980s and 1990s, nothing was done to strengthen Social Security, despite continuing concern about its projected financial crisis. "Somehow, it never seems to be the right time for reform," Neil Howe and Richard Jackson wrote in a 2001 commentary in Pensions & Investments.
Mr. Greenspan estimated Social Security and Medicare outlays will rise to at least 12% of gross domestic product by 2030, up from less than 7% today.
With the election approaching, Congress will likely do nothing until next year at the earliest. Then it should adopt, with the priority and dispatch given to recent corporate reforms, a Social Security reform that includes at least Mr. Greenspan's suggestions. It should revisit the issue of investing part of the assets in stocks, either through index funds or private accounts.
A reason for Mr. Greenspan's recent concern is that while Social Security tax revenues now exceed its payouts, helping to reduce the federal government deficit, this surplus is projected to shrink and disappear. This loss will cause the federal deficit to grow. Mr. Greenspan presented a stark forecast in hopes of jolting Congress from complacency. But his testimony was too rosy about one thing. "History has shown," he concluded, "that when faced with major challenges, elected officials have risen to the occasion."
Congress hasn't with Social Security. But it will have to enact reform eventually. The longer it waits, the more financial pain that reform will cause to retirement benefits, the economy and the nation's living standards.