Greenspan backs Bush tax cuts

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Federal Reserve Chairman Alan Greenspan yesterday said he supports renewing President Bush's tax cuts, but only if they are offset by spending cuts estimated at $1 trillion.

To ensure the tax cuts are paid for, Mr. Greenspan said Congress' first priority should be to reinstate budget rules that expired in 2002 that require any new or extended tax cuts and spending programs to be offset by cuts elsewhere in the budget.

With an eye toward balancing the budget to avert a financial disaster after baby boomers start retiring in six years, Congress should consider cuts in all spending programs -- including the politically sensitive entitlements Social Security and Medicare, he said.

"I am in favor, as I have indicated in the past, for continuing the tax cuts that are in dispute at this particular stage. But I would argue strenuously that it should be taken out on the expenditure side," he said.

Spending cuts proposed by President Bush are aimed primarily at some $360 billion of domestic discretionary spending programs such as transportation and agriculture -- leaving out the largest and fastest-growing programs, Mr. Greenspan said.

Congressional Republicans want to freeze those discretionary programs at this year's levels, yielding about $2 billion more in savings than Mr. Bush has proposed. Any cuts would be difficult to pass in an election year, when spending usually goes up.

But with the deficit increasing by $500 billion a year and baby boomers' retirement looming, the enormous cuts needed to put the government's house back in order would have to come from the largest programs, Mr. Greenspan said, including the huge retirement programs that in a few years will turn the government primarily into a pension provider.

"My real concern is that when the time comes to start to pay these benefits, we're going to find that we are in very serious fiscal difficulty," he said.

"We're going to have to relook at some of the entitlement spending" and consider raising the Social Security and Medicare retirement ages by indexing them to longevity as well as trimming yearly inflation adjustments for the programs, he said.