Greenspan's Tax Views Prompt GOP Raves

W A S H I N G T O N, Jan. 26, 2001 -- President Bush, in office less than a week,has scored an early triumph in his campaign for a $1.6 trillion taxcut, winning Federal Reserve Chairman Alan Greenspan’s support fortax relief.

Greenspan, who until recently was insisting that the best use ofthe projected surpluses was to pay off the national debt, saidThursday that the surplus estimates have gotten so large that henow believes there will be enough money to pay off the debt and cuttaxes too.

In testimony before the Senate Budget Committee, Greenspan saidthat if the surplus projections come true — $5 trillion over thenext 10 years — the government will be able to eliminate the $3.4trillion in debt held by the public and have enough left over toreduce taxes.

New Administration Welcomes Comments

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

House Speaker Dennis Hastert, R-Ill., said Greenspan's testimony"confirmed that the path advocated by President Bush and theRepublican Congress is the right one. Fiscal discipline combinedwith tax relief will keep our economy growing."

In addition to dropping his previous reservations about usingthe surplus for tax cuts, Greenspan also voiced support for anotherelement of a tax cut program that Bush is considering — speeding upthe relief so that it can provide support for an economy that hassuddenly lost altitude.

In fact, Greenspan used some of the starkest language he hasever employed to describe current economic conditions, saying thedramatic slowdown that began in the fourth quarter has probablypushed economic growth "very close to zero" in the currentquarter.

He said he still believed the country could avoid a full-blownrecession as long as consumer confidence did not tank.

Economists Encouraged Private analysts saw Greenspan's comments as a strong hint thatthe Fed is ready to follow up its surprise Jan. 3 interest rate cutwith another half-point reduction next week.

"He was very open about his views about how dramatically theeconomy has slowed," said David Jones, chief economist at AubreyG. Lanston & Co. in New York.

Some private analysts saw Greenspan's change of views on taxcuts as an example of how the Fed chairman, who has served underfour presidents, can change his positions to match changing viewsin the White House.

"Prior to Thursday, Greenspan said don't count your surpluschickens until the eggs are hatched. But now … Dr. Greenspansuddenly is a believer in budget projections," said Paul Kasriel,chief economist at Northern Trust Co. in Chicago.

Kasriel said Greenspan's conversion to support for the biggersurplus forecasts was occurring at a time when the economicslowdown is likely to trim government revenues in the near-term andCongress has shown its ability for two years running to eat intothe surplus with billions of dollars in new spending.

Greenspan's comments in the first week of the new administrationmark the second time in his 13-year tenure at the Fed that he haslent critical support early on to the budget plans of a newadministration.

In February 1993, the new Clinton administration receivedGreenspan's endorsement for its deficit reduction program eventhough half of the savings were to come from increased taxes, afact that left GOP members of Congress fuming that Greenspan, aRepublican, had deserted his party.

This time around Republicans were lavish in their praise, butDemocrats were complaining.

One Budget Committee member, Sen. Ernest Hollings, D-S.C., toldGreenspan "in all candor you shock me with your statement," whileSen. Charles Schumer, D-N.Y., called Greenspan's change of views a"mistake." Sen. Max Baucus, D-Mont., warned that Greenspan'ssupport for tax cuts could be used "as justification for anexcessive and explosive tax measure."

For his part, Greenspan said he was just as surprised as anyonethat the surplus forecast would improve so much in just a year'stime.

"I must say, I never expected to see the day where I would betalking about anything other than reducing the debt," Greenspansaid. "I'm running into the tyranny of zero, which is where youcan't reduce [the debt] any more. And so, have my views changed?Yes, they've changed. They have to change. I see no alternative tothat."