Alan Greenspan yesterday testified before the Senate Budget Committee in favor of President Bush's plan to make the Bush tax cuts permanent:

Federal Reserve Chairman Alan Greenspan said Thursday that Congress should make President Bush's tax cuts permanent and cover the $1 trillion price by trimming future benefits in Social Security and other entitlement programs.

Greenspan told the Senate Budget Committee that Congress, "as a first order of business," should restore budget rules that cap discretionary government spending and require increases in entitlement benefits or cuts in taxes to be offset by other program cuts or other tax increases.

Greenspan was asked how he would come up with the decade-long cost of $1 trillion to pay for extending the 2001 and 2003 individual tax cuts. "I would argue strenuously that it should be taken out on the expenditure side," he answered.

Greenspan delivered the traditionally conservative position of smaller government, something the present Administration has been reluctant to do, preferring its more populist and expansive "compassionate conservatism" until recently. Greenspan's testimony may give some comfort to Bush's restless base which has recently made their displeasure known with some of Bush's legislative choices, such as increasing the funding for the National Endowment of the Arts and the proposal to create a guest-worker program to deal with illegal immigration.

Greenspan's remarks on Social Security, on the other hand, may cause Bush some problems in November, although his advice is simply common sense:

He recommended two items for study in terms of trimming benefits: linking the retirement age to the population's longer life spans and tying cost-of-living benefits in Social Security to a less-generous index than the Consumer Price Index. ... Greenspan said it was precisely as a result of that looming wave of retirement that lawmakers must update Social Security, Medicare and other entitlement programs.

For the rest of us, adjusting retirement targets for longer life spans make sense; the average life span has increased by several years since the creation of Social Security and retirement age has only gone backward during the 70 years since. When Social Security was implemented, 65 was higher than life expectancy, and after the economic collapse of 1929-32 most people's savings had been wiped out, meaning that nothing was left if they could no longer work. In 2004, those conditions no longer exist, but we have never addressed the change in context, allowing Social Security to grow out of control. Greenspan warns us, correctly, that the impending retirement of the baby-boomer population bulge will either bankrupt the system or force younger workers to float the difference.

Unfortunately, Social Security reform in an election year is a bit analogous to having a catatonic dragon sleeping just outside your city. You know eventually the dragon will wake up and wreak havoc, but it's not awake now, and you'd just as soon let it lie and make it someone else's problem later. Even suggesting that reform will be necessary -- especially for Republicans -- guarantees that the airwaves will suddenly be filled with ads paid for by AARP accusing you of "ageism" and nightly news stories of old ladies eating cat food to get by. You can expect the Bush administration to herald Greenspan's tax advice but grow strangely silent about his recommendations for paying for it, at least until after November.

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