Greenspan Backs Panel to Rule On Inflation Levels; Index Change Could Make Balancing Budget Easier
Federal Reserve Chairman Alan Greenspan yesterday strongly supported creation of a presidentially appointed commission to set the size of annual cost-of-living adjustments in Social Security, other federal benefits and income taxes, an idea that appears to be gaining political momentum.</br></br>Greenspan, testifying before the House Budget Committee, said there is "almost a 100 percent probability that we are overcompensating the average Social Security recipient for increases in the cost of living." That's happening, he said, because the consumer price index, which is used to determine the size of the annual adjustment, overstates increases in "the true cost of living."</br></br>President Clinton, acting on the advice of his top economic advisers, who met Monday to discuss the issue, directed them to explore the concept of an independent commission with congressional leaders. The president could make a decision by the end of the week on whether to move forward on the politically charged idea, which would reduce future increases in Social Security and many other benefit programs, as well as make taxes higher than they otherwise would be.</br></br>Senate Majority Leader Trent Lott (R-Miss.) called last week for an independent commission, and White House budget director Franklin D. Raines has expressed support for a panel to improve the accuracy of federal cost-of-living adjustments.</br></br>Greenspan's backing, along with research by Fed economists that supports the finding that the CPI overstates inflation, gives added credibility to the commission concept and might make it easier for lawmakers to support a change in the way in which federal programs are indexed for inflation.