Greenspan: Trim Social Security

WASHINGTON -- Federal Reserve chairman Alan Greenspan, stepping into the politically charged debate over Social Security, said yesterday the country can't afford the benefits currently promised to the baby boom generation.

He urged Congress to trim those benefits to get control of soaring budget deficits, which he said threatened a "very debilitating" rise in interest rates in coming years.

Democratic presidential candidates denounced his proposals, and President Bush and other Republicans sought to distance themselves from Greenspan.

The central bank chairman also repeated his view that Bush's tax cuts should be made permanent to bolster economic growth. He said the estimated $1 trillion cost should be paid for, preferably, with spending cuts so the deficit would not be worsened.

As for specifics on trimming Social Security, Greenspan told the House Budget Committee that one possibility would be to switch to an alternative measure of inflation for annual cost-of-living adjustments. Instead of relying on the consumer price index, he suggested switching to a new chain-weighted CPI that gives lower inflation readings and thus would mean smaller payment increases.

Greenspan, who turns 78 next week, also suggested tying the retirement age for full benefits to longer lifespans with the age continuing to rise. The 65-year age for retiring at full benefits started increasing last year and will increase to 67 over the next two decades and then stop rising.

Greenspan's remarks set off a political storm.

Democratic front-runner Senator John Kerry of Massachusetts said the way to address the deficit was to roll back tax cuts for the wealthy and "the wrong way to cut the deficit is to cut Social Security benefits. If I'm president, we're simply not going to do it."

Senator John Edwards, Democrat of North Carolina, called it "an outrage" for Greenspan to call for cuts in Social Security while endorsing permanent tax cuts.

Separately, Greenspan said Bush's forecast for this year's average job tally to be 2.6 million higher than in 2003 is threatened by companies avoiding hiring as sales and profit rise. "Progress in creating jobs has been limited," Greenspan said, even as the US economy is in a "vigorous expansion." Material from Bloomberg News was used in this report.