Social Security Cuts May Be Necessary: Greenspan

Federal Reserve Board Chairman Alan Greenspan said today that deep cuts in “entitlement” programs, which include Social Security and Medicare, may be the most realistic way for cutting the federal budget deficit.

Greenspan, testifying before the Senate Budget Committee, also called for a 15-cent-a-gallon increase in the federal gasoline tax.

But he said that, in general, tax increases do not appear to be a feasible way for trimming the budget shortfall, which was $150 billion last year.

“There are upside limits to the share of income that can be taxed,” Greenspan said.

He also said he saw little opportunity for further major cuts in military spending or in such crucial federal programs as the prison and air control systems.

That leaves little left for budget cuts beyond entitlement programs, which make up about half of the federal budget.

Entitlement programs are automatic-benefit social programs, in which increases are tied to the rate of inflation.

“Simple arithmetic points clearly to those areas where the scope for action is greatest,” Greenspan testified.

Even though trimming Social Security and other benefit programs would be politically difficult, Greenspan told the panel that “entitlement programs offer substantial opportunities for long-term budgetary savings.”

“All the alternatives are known. The choices are political, not economic,” Greenspan testified. He appeared as the panel considered President Reagan’s $1.09-trillion budget for the fiscal year that begins next Oct.1