ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, March 5, 1997 TAG: 9703050072
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
Federal Reserve Chairman Alan Greenspan said Tuesday the 60 million Americans receiving Social Security and other government benefits are almost certainly being overpaid because inflation is overstated. He renewed his drive to fix the inflation gauge.
Testifying before the House Budget Committee, Greenspan suggested Congress adopt a two-track approach to revise the Consumer Price Index so that it will provide a better yardstick for adjusting benefits and the income tax system to compensate for inflation.
``The best available evidence suggests ... that we are overcompensating the average Social Security recipient for increases in the cost of living,'' Greenspan said.
He also said that because the CPI is used to adjust individual income taxes, the law is allowing people to deduct more from their income taxes than Congress probably intends.
Supporting the conclusions of a five-member commission in December, Greenspan said the exaggeration in the CPI ranges between 0.5 percentage point and 1.5 percentage points per year.
The commission headed by Stanford economist Michael Boskin put the upward bias at 1.1 percentage points annually. The panel said if this bias is not corrected it will cost the government $1 trillion in overly generous pension payments and incorrect adjustments to tax returns over the next decade.
Greenspan Tuesday repeated a proposed two-track solution that he first offered Jan.30. He said the Bureau of Labor Statistics should hurry up and fix the easier problems and an independent commission should be created to produce an annual estimate of how close the CPI is to real inflation.
Greenspan's suggestion for an independent group of experts received support in the past week from both Senate Majority Leader Trent Lott, R-Miss., and the White House.
White House budget director Franklin Raines told reporters Tuesday that the administration had not made a final determination on the issue of an outside panel, although both he and President Clinton have spoken favorably about the idea.
``We're continuing our consultations to see how we should follow up on the request of Mr. Lott,'' Raines said. ``A decision has not been made at this point to appoint a commission.''
A week ago, Lott called for appointment of a panel of ``four graybeards'' to adjust the CPI as part of the upcoming budget negotiations.
The idea has drawn stiff opposition, however, from the American Association of Retired Persons, which argues that any changes affecting the CPI should be made only by the experts at the Bureau of Labor Statistics, the agency that produces the inflation gauge.
But Greenspan said in his testimony Tuesday that the stakes were too high to put off fixing the problem.
``We have an overarching national interest in building a better measure of consumer prices and in implementing more rational indexation procedures,'' he said. ``These efforts are essential if we are to ensure that the original intent of the relevant pieces of legislation will be fulfilled in insulating taxpayers and benefit recipients from the effects of ongoing changes in the cost of living.''
LENGTH: Medium: 64 linesby CNB