Greenspan Urges Cut in Social Security Program : Fed Chief Says Trimming Entitlements, Raising Gas Tax May Be Only Ways to Reduce Budget Deficit

Federal Reserve Board Chairman Alan S. Greenspan told Congress on Wednesday that it should consider trimming Social Security and other entitlement programs as it searches for ways to reduce the federal budget deficit.

Saying that such guaranteed-benefit programs “account for nearly half of total outlays,” Greenspan held out little hope for major deficit reductions in other areas--although he did propose a 15-cent-a-gallon increase in the gasoline tax.

“Several rounds of deficit-reduction efforts already have taken care of the easy cuts,” Greenspan told the Senate Budget Committee, which is considering President Reagan’s $1.09-trillion budget request for the fiscal year that begins Oct. 1.

Greenspan said entitlement expenses, which include Social Security, Medicare, Medicaid and various forms of welfare, will rise dramatically in the early 21st Century because of the “increase in the beneficiary population.”

Sen. Kent Conrad (D-N.D.) told Greenspan: “Baby boomers are going to be in for a big surprise when it’s time for them to start collecting Social Security.” Baby boomers is the phrase given to the bulge in population from those born after World War II and into the mid-1960s.

Greenspan, who as a private citizen chaired a bipartisan commission that helped overhaul Social Security financing in the early part of this decade, did not specify exactly which programs he would cut.

But he said the effect of cuts in entitlement programs made now would be amplified in years to come. He noted that some 38 million Americans, or about 15% of the population, “are collecting Social Security retirement or disability benefits.”

Despite the political problems associated with trimming benefit programs such as Social Security, Greenspan told the committee: “All the alternatives are known. The choices are political, not economic.”

“I wish you well. And I don’t think you need me to tell you how to go about it,” he said.

The Reagan Administration has projected a fiscal 1988 budget deficit of $146.74 billion. The Congressional Budget Office, however, says it’s likely to be about $157 billion, substantially above the $144-billion target called for in the Gramm-Rudman budget-balancing law.

President Reagan’s budget recommendations for 1989 project a deficit of $129.5 billion.

Social Security spending is projected to reach $214.7 billion for this year, compared to $202.4 billion for 1987.

Other Health and Human Services programs, including Medicare and Medicaid, spent $50.51 billion in the first four months of 1988, compared to $49.43 billion in the same period of 1987.

Interest payments on the $2.2-trillion national debt are expected to total $210.06 billion in fiscal 1988, accounting for 20% of total federal spending.

In other testimony, Greenspan said:

- Even if the Fed wanted to drive down interest rates sharply at this time, “we would find we would fail,” because markets would likely resist such a move and “would run away from us.’

- Trade deficit improvements, led by higher import prices and surging exports, would continue even at current exchange-rate levels of the dollar.

- There was some danger of increased inflation in the coming months, but higher prices do “not appear to be on the order of a magnitude that should cause concern.”

- “There are no secret agreements” among industrial nations involving interest rate levels in the United States to support the goal of a stabilizing the U.S. dollar at its current rate of exchange.