Greenspan: Tax Cuts not needed

[bigpoppanils]

Greenspan Says Tax Cut Is Not Needed for Growth

By DAVID E. ROSENBAUM

ASHINGTON, April 30 — Alan Greenspan, the chairman of the Federal Reserve Board, told Congress today that the economy was poised to grow without further large tax cuts, and that budget deficits resulting from lower taxes without offsetting reductions in spending could be damaging to the economy. Opponents of the large cut favored by President Bush took Mr. Greenspan's testimony as support for their position.

Mr. Greenspan's statements to the House Financial Services Committee were made as new Treasury data showed that tax revenues have arrived at a much slower pace than expected this spring. As a consequence of the revenue shortfall and increased spending enacted this month, government and private analysts said today, the budget deficit this fiscal year will be at least $80 billion higher than the Congressional Budget Office projected last month.

With a large deficit, Mr. Greenspan said, "you will be significantly undercutting the benefits that would be achieved from the tax cuts."

The combination of Mr. Greenspan's testimony and the prospects of a higher deficit gave added ammunition to Mr. Bush's political opponents, as the president continued today to press Congress to approve a $550 billion, 10-year tax cut.

"These deficit numbers are just the latest reminder that what many of us have expressed concern about is becoming even more of a problem," said Senator Tom Daschle of South Dakota, the Democratic leader.

The president met today on the tax issue with Republican Congressional leaders. Afterward, Senator Bill Frist of Tennessee, the majority leader, said that the president and all the leaders wanted as large a tax cut as possible and that Congress might consider more than one tax measure this year.

Ari Fleischer, the White House spokesman, played down any disagreement with Mr. Greenspan. Last week, the president announced that he would renominate Mr. Greenspan to his fifth term as Fed chairman, and Mr. Greenspan, 77, said he would accept.

Mr. Fleischer said today that Mr. Bush's first priority was creating jobs immediately and that the government could reduce the deficit "over time." He agreed with Mr. Greenspan that the best way to lower the deficit was to hold the line on government spending.

Mr. Greenspan said that with the end of the uncertainties associated with the war in Iraq, the economy was in a position for strong growth. But if that does not occur, he said, the Fed was prepared to lower interest rates further.

As is his practice, Mr. Greenspan spoke elliptically in his Congressional testimony and never addressed the tax legislation before Congress specifically.

But he said that even without additional stimulus, "the economy is positioned to expand at a noticeably better pace than it has during the past year."

He also said new academic evidence had strengthened his opinion that budget deficits led directly to higher interest rates.

Mr. Greenspan's view on tax cuts is similar to one he expressed in February, but the environment has changed. Congress is now on the verge of drafting and voting on actual tax legislation, and the Fed chairman's views on economic matters carry more weight in Congress than the opinions of any other economist.

In response to a question about the need for additional economic stimulus, Mr. Greenspan said that with the tax cuts enacted in 2001 and sizable growth in government spending, "we already have a significant amount of stimulus in place."

He added that he was skeptical of the ability of changes in tax and spending policy to "fine tune" the economy in the short term.

Mr. Greenspan said he strongly supported the president's tax policy, particularly the proposal to eliminate taxes on most stock dividends, "provided it is matched by cuts in spending."

Deficits are especially important in the near future, he said, because of the pressure on the economy early in the next decade when the baby boom generation begins to reach retirement age.

The shortfall in tax revenues has been apparent all spring, but the magnitude did not become clear, economic analysts said, until they examined the Treasury's daily reports of tax receipts in the two weeks since the April 15 filing deadline.

William C. Dudley, chief economist at Goldman Sachs, said he was seeing "a pretty sizable shortfall relative to expectation."

Goldman is forecasting a $425 billion deficit in the current fiscal year, which ends Sept. 30. In February, the White House projected a deficit of $304 billion. Last month, the Congressional Budget Office, using a different method of calculation, projected a deficit of $246 billion.

A senior Republican staff member in Congress who has analyzed the Treasury data said that revenues were running about $40 billion lower than the Congressional Budget Office expected. He said tax refunds were about $20 billion higher than anticipated and tax payments about $20 billion lower.

One reason for the shortfall in revenues, economists say, is that the poor performance by the stock market in 2002 resulted in smaller tax payments of capital gains taxes and fewer taxes paid by business executives who exercised stock options.

In addition to the deficit increase resulting from lower revenues, the projections by the White House and the Congressional Budget Office do not count the $42 billion in additional spending, mostly for the war, that Congress approved this month. Nor do they consider the likelihood that Congress will approve tax cuts and make at least some of them retroactive to Jan. 1 and the probability that the administration will ask Congress for additional spending authority for reconstruction costs in Iraq.

[mr mahs]

I respect Greensapn..

Politically Bush can't just sit back and hope the econmy turns that's where his father went wrong. The attempt for the tax cut even if it doesn't pass would still provide ammo for the domestic debate in 2004....

If it does pass..

The key to his tax cut is cutting spending in Congress..

In the Raegen years tax cuts increased revenue but Congress increased spending that is what created the large deficits of the 80's..

[siceone]

I don't respect Greenspan he's proven that he is in effectual really in my eyes he's couldn't stave of the wonton investment during the clinton years and did nothing during the bush administration. I think he needs to go. Im glad mr. greenspan knows what's best for MY money

[mr mahs]

Originally posted by siceone

I don't respect Greenspan he's proven that he is in effectual really in my eyes he's couldn't stave of the wonton investment during the clinton years and did nothing during the bush administration. I think he needs to go. Im glad mr. greenspan knows what's best for MY money

You don't rememeber him saying to Congress that the stock market bubble will hurt the econmoy during the Clinton years and the market rallying in his face (those were the good ol days... j/k).. I think he was a little too agreesive with the interest rates increases but infaltion next to depression is the worst economic situation... The aggressive interest rate cuts the fed has donbe would have worked in a NON SEPT 11TH world but that's the hand we were dealt... just be happy that the U.S can adapt to any situation and we are coming out of a recession unless the run up in oil prices pre Iraq sends us double dipping...