Greenspan told the Senate Budget Committee that Congress, "as a first order of business," should restore budget rules to cap discretionary government spending and require that increases in entitlement benefits or cuts in taxes 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, chairman of a commission that recommended solutions to a Social Security funding crisis in 1983, said he has long felt that the promised benefits far exceed the government's ability to pay for them.

As for seeking ways to trim benefits, he recommended two items for study: linking the retirement age to the longer life spans and tying annual cost-of-living benefits in Social Security to a less generous inflation index than the Consumer Price Index.

Committee members questioned whether such proposals could pass Congress, especially because they would cut benefits for the 77 million baby boomers who are nearing retirement age.

But Greenspan said it was precisely because of the wave of boomer retirements that lawmakers need to update Social Security, Medicare and other entitlement programs.

"We have constructed a good deal of the benefit structure over the last quarter-century without a real firm look at whether or not the real resources were there to meet those benefits," Greenspan said. "And I suggest that what we have to do, as difficult as it's going to be, is to relook at some of these commitments."

He said it would be far better to do that now than to fall short later.

"My real concern is that when the time comes to start to pay these benefits, we're going to find that we are in very serious fiscal difficulty," Greenspan said. "I do think it's important for the people who are retiring to have a sense of security that what is being promised to them as they retire will indeed be there."

The budget rules that Greenspan favors reinstating expired in late 2002. He wants "pay as you go" rules to apply to both spending and taxes so the deficit does not worsen; Bush is recommending they cover only spending.

If Bush got his way, he would not have to come up with the estimated $1 trillion needed to make the tax cuts permanent.

Greenspan came out in support of the administration on the idea of permanent tax cuts, even in the face of deficits estimated to reach a record $521 billion this year.

At a critical point three years ago, the Fed chairman also endorsed the president's first tax cut, at a price of $1.35 trillion, as a good way to handle surpluses that were then projected to total $5.6 trillion over the next decade.

At the hearing, Greenspan was questioned about a recent tell-all book written about former Treasury Secretary Paul O'Neill, whom Bush fired in late 2002.

In the book, O'Neill said he and Greenspan had a secret agreement that Greenspan would publicly call for a mechanism to be included in the 2001 tax cut to tie cuts in future years to continued budget surpluses. If the $5.6 trillion in projected surpluses did not materialize, then the trigger would roll back the cuts.