WASHINGTON — Federal Reserve Chairman Alan Greenspan told Congress on Wednesday that it needed to reduce Social Security benefits "as soon as possible" if the program was to withstand the waves of baby boomers rapidly approaching retirement.
Greenspan also suggested that the eligibility age for full Social Security benefits -- now 65 years and four months -- may need to be raised. Under a 1983 law, that age is gradually increasing and will reach 67 for those born in 1960 or later.
The influential central banker's controversial recommendations came during congressional testimony that also focused on the nation's soaring budget deficit, now projected to reach $521 billion.
Greenspan warned members of the House Budget Committee that the record deficit would worsen once the estimated 76 million boomers -- born between 1946 and 1964 -- start to become eligible in 2011 for Social Security and Medicare benefits.
"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we almost surely will be unable to meet unless action is taken," Greenspan said. "I am just basically saying that we are overcommitted at this stage."
Despite that fear, Greenspan reiterated that he favored making permanent the Bush administration's tax cuts, which cost about $1.24 trillion over 10 years, and said he preferred spending cuts to offset any increase in the deficit. Raising taxes, he said, could "pose significant risks to economic growth and the revenue base."
Shortly after Greenspan's committee appearance, President Bush said he opposed any change in benefits "for people at or near retirement."
In a short session with reporters after meeting President Mikheil Saakashvili of Georgia, Bush added that "we ought to have personal savings accounts for younger workers that would make sure those younger workers receive benefits equal to or greater than that which is expected." He said he had not spoken with Greenspan or been briefed on the chairman's comments.
The statements from Greenspan, who in the early 1980s led a commission on the solvency of Social Security, introduced into the presidential campaign a new and volatile issue -- one that traditionally has favored Democrats.
The two leading contenders for the Democratic presidential nomination quickly rejected any cuts in Social Security benefits even as they cited Greenspan's testimony in renewing their demand for a repeal of the Bush tax cuts.
