Former chief economic advisers to three presidents told the Senate Finance Committee yesterday that significant deficit reduction will be difficult if not impossible without savings from Social Security and other middle-income benefit programs.
The testimony from the Ford administration's Alan Greenspan, the Carter administration's Charles L. Schultze and the Reagan administration's Martin S. Feldstein reinforced suggestions from incoming Senate Majority Leader Robert J. Dole (R-Kan.) and others that Social Security be considered as part of an across-the-board spending freeze for next year.
This would mean denial or cutback of annual cost-of-living increases for the huge, politically sensitive retirement program, which President Reagan vowed not to cut in his reelection campaign last year.
At a presession hearing aimed at building a case for major deficit reductions, the three former advisers also cautioned against falling short of Reagan's goal of halving the deficit to about $100 billion over the next three years, which the White House itself has yet to meet in specific proposals for spending cuts.
They warned of serious long-term dangers to the economy if the deficit reduction effort fails, including, according to Schultze, a drop in Americans' general standard of living. On the other hand, they said a substantial decline in interest rates is likely if major reductions are made, with Feldstein suggesting the likelihood of a drop of about 2 percentage points.
Feldstein and Schultze also indicated that tax increases and deeper defense spending cuts than the administration wants will have to be included in the deficit reduction plan if Reagan's goal is to be met.
But Greenspan cautioned that tax increases are less likely to produce a significant drop in interest rates than spending cuts, and a fourth witness, former assistant treasury secretary Paul Craig Roberts, dismissed tax increases as counterproductive in the effort to strengthen the economy through spending cuts that help reduce deficits.
Under questioning from Sen. John C. Danforth (R-Mo.) about whether Reagan's goal could be achieved without cuts in middle-income entitlement programs, Feldstein said it would be "difficult" to ignore Social Security unless Congress was prepared to raise taxes by a huge amount.
Schultze said that with 40 percent of the budget taken up by entitlement programs that pay benefits directly to recipients, Congress "can't have a credible program" for deficit reduction without cracking down on entitlements.
But Schultze also contended that previous entitlement cuts have slowed the growth of benefit programs to the point that they no longer can be cited as a primary cause of mounting deficits.
Greenspan was even more adamant about entitlement cuts, saying he could see no way of making a "really frontal assault on the deficit that can essentially eliminate from consideration the major entitlement programs," especially their built-in annual inflation adjustments.
After the hearing, which came on the eve of the formal convening of the 99th Congress today, incoming Finance Committee Chairman Bob Packwood (R-Ore.) declined comment until Senate Republicans reach a consensus on whether to support specific program cuts.
The issue is expected to come up at a presession caucus today and continue in a session Friday that will be attended by White House officials and senior Republicans on Senate committees.
Packwood said he thought Congress could make sufficient deficit reductions without touching Social Security but warned that it would require deeper compensating cuts in other programs.
Dole, the departing Finance Committee chairman, skirted the Social Security issue in comments to the committee yesterday, although he and Budget Committee Chairman Pete V. Domenici (R-N.M.) are working on an alternative budget plan that includes Social Security benefits in a spending freeze.
In a statement before the hearing, Dole appeared to rule out tax increases as part of a deficit-cutting package, at least for now.
"Considering tax changes at this time would be highly controversial -- particularly with the president -- and might impede progress on the deficit," he said.
But Dole appeared to leave the door slightly ajar in saying that "we can see where we are and consider other options" after having nailed down sufficient spending cuts to assure financial markets that Congress is serious about deficit reduction.
Meanwhile, House Minority Leader Robert H. Michel (R-Ill.) was considering trying to force a House vote today on an across-the-board budget freeze, including defense as well as domestic spending, in connection with adoption of rules for the new session.
Aides said Michel will decide today whether to go ahead with the plan, which would cut the anticipated deficit of about $200 billion for next year by roughly $30 billion, of which $20 billion would come from defense. Reagan has endorsed defense savings of less than half that amount.
Unlike the plan under study by Senate Republicans, Michel's proposal would not curtail cost-of-living increases for Social Security