The Greenspan view of social security, taxes, deficits, recovery
Worrying about your social security pension? Don't, says Alan Greenspan, the head of a presidential commission that studied the social security system and saw many of its recommendations passed into law by Congress this spring.
Some analysts still forecast a failure of that system. But Mr. Greenspan, in an interview, said it would take ''a very adverse economic scenario'' to create major financial problems for the retirement-disability side of the social security system. In other words, he views retirees' social security pensions as secure.
He adds, however: ''Unquestionably, medicare has very serious problems. Its financing difficulties are far worse than anything we've confronted in the retirement and disability system.''
Mr. Greenspan served former President Ford as chairman of his Council of Economic Advisers. He's now back with his own firm of economic consultants, Townsend-Greenspan & Co., keeping an eye on the business scene for corporations.
The conservative economist finds much satisfaction with the ''central thrust'' of President Reagan's long-term strategy. He regards the major economic problem of the 1970s as the construction by Congress and the administration of ''entitlements'' (such as antipoverty programs, enlargement of social security, and so on) that will continue to add costs to the federal budget in the 1980s, 1990s, and beyond. The President's program, he says, has succeeded ''in part'' in restraining that growth.
Further, the Reagan program, through its tax cuts and the plan for ''indexing'' of the tax system starting in 1985 to prevent inflation from causing ''bracket creep,'' has limited unlegislated increases in the tax burden that to some degree ''created the politi-cal capacity to expand entitlement and other nondefense programs inordinately.''
In fact, he says, a lower rate of inflation than expected has meant that there has been some real, though small, cuts in marginal tax rates - the tax rate on the last dollar an individual earns.
Mr. Greenspan also cheers the final results of the 1981 and 1982 changes in corporate taxes: These have ''clearly improved the underlying incentives to invest.'' But they will only be ''effectively triggered'' when the federal budget deficit is brought under control.
What's needed now, he says, is further cuts in expenditures, especially entitlements, plus a value-added tax, in order to bring the deficit over the long term ''back into line.'' He would not want to see tax indexing repealed or limited, as some in Congress have been proposing.
However, revenues from the value-added tax, a form of sales tax or tax on consumption, should not be used to finance further spending increases if one of its purposes is to restructure the economy toward greater growth, Greenspan says.
That requires, he believes, a bipartisan agreement in Congess on a joint set of programs addressing both expenditures and revenues. But he views such a solution ''as politically difficult, maybe undesirable even, until after the next presidential election.''
Before Treasury Secretary Donald Regan noted that the federal deficit for fiscal 1983, ending this month, would likely come in at less than $200 billion, about $10 billion less than official estimates in July, Mr. Greenspan made the same prediction. Expenditures, he said, have been under budget, partially because the cost of unemployment benefits and other assistance programs has fallen and partially because the Agriculture Department and the military have not spent their money as fast as anticipated. ''This is merely a delay, not an alteration, in the trend of defense outlays,'' he cautioned.
The economic recovery was considerably stronger in the second and third quarters of this year than Mr. Greenspan forecast. Now he's anticipating a slowdown from the 7 percent annual rate this quarter to a 4 to 4.5 percent annual rate for the next two quarters, followed by a 4 percent rate in the second quarter of 1984 and 3 percent for the last half of that year.
Despite this healthy recovery and the increased federal revenues it creates, Mr. Greenspan expects the deficit in fiscal 1984 to run around $180 billion. Much, he says, depends on the level of corporate profits.
Mr. Greenspan laments the ''exaggerated'' language, forecasts, and claims of some of the ''supply-side'' economists. ''Some of the practitioners are giving 'supply side' a bad name,'' he says. But he does approve of their emphasis on the need for greater incentives for investment, as opposed to consumption. He believes the corporate-tax changes and other incentives newly put in place will in the latter part of the 1980s result in a higher level of investment - ''perhaps significantly so'' - than would have been the case without them.
It would help, he concludes, to get the budget deficit under control, because it tends to create an ''inflation premium'' in long-term interest rates. Mr. Greenspan just doesn't like globs of federal red ink.
Mr. Greenspan also had some comments on the Council of Economic Advisers (CEA).
Every so often the press or other observers rap CEA chairmen for a lack of influence on national economic-policy questions. Murray Weidenbaum, President Reagan's former chairman, got his share of criticism; the current CEA chairman, Martin Feldstein, now about a year in office, is just starting to get some flack.
But Mr. Greenspan holds that any CEA chairman has little influence of his own.
The CEA ''has a type of structure which will work provided the president requests the assistance of the CEA. That's why the importance of the council has fluctuated far beyond fluctuations in the quality of the council itself, the quality of the members. The key basically is the willingness of the president to use the institution. If he chooses not to use it, his (the chairman's) influence is modest. But if he (the president) chooses to use it, his influence can be very considerable.''
Mr. Greenspan was fortunate in that President Ford listened to his advice and often took it. Dr. Feldstein, on leave from Harvard University, has had less influence on President Reagan, the former presidential adviser figures.