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Greenspan urges tax reform in debt cut effort

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WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan called for tax reform to be part of an urgent effort to put the U.S. economy back on track.

"Tax reform is a major part of any fiscal reform. It will contribute to a restoration of American competitiveness and the vibrant economy that goes with it," he told a Senate panel.

Criticized widely for mistakes when he was the nation's top central banker, Greenspan is not nearly the economic hero he once was, but his counsel is still sought on Capitol Hill, and it was gloomy at a Senate Finance subcommittee hearing.

"There is no credible scenario of addressing our current fiscal problems without inflicting economic pain," he said in testimony prepared for delivery to the panel.

"We have been procrastinating far too long in coming to grips with the retirement of the baby-boomer generation, a fiscal problem that has been visible for decades."

Greenspan called for reforms to the Medicare health program for the elderly and the Social Security retirement pension program.

He endorsed tax and entitlement reform recommendations made last year by the White House's bipartisan Bowles-Simpson commission. "What impressed me most of Bowles-Simpson is that it addresses tax expenditures," Greenspan told the panel.

Tax expenditures -- otherwise known as loopholes and subsidies -- should be targeted for reform, he said.

Democratic Senator Bill Nelson, chairing the hearing, agreed. "A launching point for getting our fiscal house in order should be an overhaul of the federal income tax," he said.

(Reporting by Kevin Drawbaugh; Editing by James Dalgleish)