NU Online News Service, Feb. 25, 2004, 7:25 p.m. EST – Alan Greenspan says Congress should start cutting Social Security benefits for future retirees.[@@]

Greenspan, chairman of the Federal Reserve System and one of the leaders of the successful U.S. war against inflation, emphasized today in testimony before the U.S. House Budget Committee that he spoke for himself, not the Federal Reserve System.

But Greenspan warned that the federal government’s return to deficit spending and the effects that the aging of the baby boomers will have on Social Security funding levels require that the government take action as soon as possible.

Otherwise, he says, ever-growing interest payments could lead to even bigger deficits.

“The resulting rise in the federal debt could drain funds away from private capital formation and thus, over time, slow the growth in living standards,” Greenspan said.

Increases in productivity and increases in tax rates could help bring down budget deficits, Greenspan conceded.

But Greenspan noted that rising productivity could lead to higher wages and, in turn, increase workers’ Social Security benefit expectations.

Tough scrutiny needs to be applied to taxes, but “tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base,” Greenspan said.

The government should honor current commitments to retirees and to workers who are near retirement, but the government should change the system as quickly as possible for younger workers, so that younger workers will have time to adjust their retirement savings plans, Greenspan said.

The House Budget Committee has posted links to recorded and written versions of Greenspan’s remarks at http://www.house.gov/budget/hearings.htm