ALAN GREENSPAN: Here's the simplest way for Trump to deliver on his massive tax cut promise
During an interview with CNBC's Sara Eisen on Thursday, the former Federal Reserve chairman said that Trump will need to slash entitlement programs in order to fund his promised corporate and personal tax cuts.
"The simplest way to get tax cuts is to cut spending and the major area where we have to cut it, or at least slow it down dramatically, is entitlements," Greenspan said.
Entitlements such as Medicare, Medicaid, and Social Security account for roughly half of federal spending and that number is expected to grow as more of the Baby Boomer generation hits retirement.
Entitlement spending has been a target of Republican plans for some time - particularly for House Speaker Paul Ryan - but Trump promised during his campaign that he would not touch these benefits. That was also echoed by Treasury Secretary Steven Mnuchin in February and Office of Management and Budget director Mick Mulvaney in March.
The president has promised to cut tax rates significantly. For instance, Trump promised to cut the corporate rate to 15% from the current 35%.
In order to do that, and keep the tax plan deficit neutral as he also promised, Trump would have to find ways to generate more revenue by closing exemptions or slash funding for government programs.
Greenspan recognized the fact that cutting entitlements is politically unpopular, but said that the types of tax cuts Trump wants would be nearly impossible without those cuts.
"Cutting social benefits or cutting entitlements is the third rail of American politics. And I think the third rail of European politics, everybody else's politics," Greenspan said. "If we don't come to grips with that, we're not going to solve this problem."