Greenspan Sees Room for Tax Cut

Jan. 25 -- Federal Reserve Chairman Alan Greenspan today gave considerable support to President Bush's push for a tax cut, saying such a measure could do "noticeable good" if the U.S. economy continued to struggle.

In his eagerly anticipated comments, Greenspan also emphasized the slowdown in the economy, giving a broad indication that a further Federal Reserve interest rate cut is on the way.

In a prepared statement he read this morning to the Senate Budget Committee, Greenspan suggested that because of the current budget surplus, a tax reduction would help buttress the nation's long-term economic health.

"The sequence of upward revisions to the budget surplus projections for several years now has reshaped the choices and opportunities before us," said Greenspan. Given such a surplus, he added, "it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases."

The president and other Republicans were quick to praise Greenspan's comments. Bush told reporters at the White House that he believed Greenspan had gotten it "just right. He recognizes that we need good monetary policy and sound fiscal policy to make sure that the economy grows."

But in his initial testimony and under questioning from senators, the Fed chairman was also careful to note that any future tax reduction would have to be enacted with caution, so as not to undermine the projected surplus.

"It is important that any long-term tax plan, or spending initiative for that matter, be phased in," Greenspan said.

In response to questions, Greenspan declined to address directly the interest rate outlook, which is to be the subject of a Federal Reserve board meeting next week. But he pointedly noted "increased slack" in the economy.

"I am looking forward to seeing what my colleagues are thinking about," Greenspan said.

On Jan. 3, the Fed unexpectedly cut rates by half a point.

Change in Focus

The Fed chairman's comments represent a slight shift in his previously stated position on tax policy. Greenspan has long advocated tax cuts, but has indicated a preference for using budget surpluses to pay down debt, rather than using them to reduce taxes.