- The Washington Times - Thursday, February 13, 2003

Federal Reserve Chairman Alan Greenspan softened his criticism of President Bush's economic stimulus plan yesterday while the White House redoubled efforts to contain damage dealt by the Fed chairman to the plan's chances in Congress.
Mr. Bush made no apology for the $674 billion increase in budget deficits projected under the plan and insisted it is needed to ensure a strong recovery this year as well as improve the economy's performance over the long run.
"If the economy needs a little oomph … why wait?" Mr. Bush asked during a speech to small investors in Alexandria, countering Mr. Greenspan's suggestion that lawmakers wait and see if the economy rebounds on its own once the question of war with Iraq is resolved.
The economy "is not strong enough. It is not robust enough," the president said. "It is an aggressive plan, no question about it."
Mr. Greenspan said in testimony to Congress on Tuesday that the main issue holding back strong economic growth is the uncertainty created by the looming war with Iraq, which caused businesses to postpone hiring and spending.
The Fed chairman had couched his criticism of the Bush plan by emphasizing that he endorses its principal feature, the elimination of dividend taxes, as a long-term economic reform and as long as it is paid for with cuts in other areas.
Yesterday, he modified his stance in testimony before the House Financial Services Committee, saying it "does have some short-term stimulus."
"It probably will increase the levels of stock prices and the wealth effect accordingly, and there are some small income effects," he said.
Because the elimination of dividend taxes would increase flexibility and boost growth, all Americans would benefit, Mr. Greenspan said. Many Democrats contend that the plan will aid only the rich.
"There is no question that this whole program will be a net benefit to everyone in the economy over the long run," he said.
Mr. Greenspan also acknowledged administration arguments that chronic high budget deficits present no immediate threat to economic growth. He said his main concern is the threat to fiscal solvency at the end of the decade, when baby boomers start retiring, if deficits are allowed to accumulate.
High deficits do loom as a threat to consumers and homeowners, however, he said, because of their potential to force up interest rates. He said that is a major reason he suggested deferring on the stimulus plan.
"I am concerned about long-term interest rates mortgage rates in particular rising," he said.
The lowest mortgage rates in 40 years not only have enabled consumers to buy homes at record rates, but also have enabled Americans to lower their debt burdens through widespread refinancings, he said.
The rate windfall has been "an extraordinarily important prop to this economy through a very stressful two or three years," he said.
The White House appeared to largely dismiss Mr. Greenspan's call for the re-establishment of budget controls requiring Congress to offset new spending and tax programs with cuts elsewhere in the budget.
Treasury Secretary John W. Snow told reporters Tuesday that the increase in deficits resulting from the president's economic program would be "manageable" and "modest" when considered as a percentage of total national output.
White House spokesman Ari Fleischer said the administration has a "reasonable disagreement" with Mr. Greenspan about the need for stimulus and expects the plan to pass Congress. "The president will err on the side of helping those who look for work," he said.
Glenn Hubbard, chairman of the White House Council of Economic Advisers, said he must politely disagree with Mr. Greenspan, while the Treasury Department released a list of 250 economists who support the plan and say additional tax cuts are needed to boost the recovery.
"As you know, economists don't always agree," Mr. Hubbard said in remarks before the U.S. Chamber of Commerce. "Geopolitical risks are a key source of uncertainty in the economy, but I don't think they're the only ones."
The president picked up support Tuesday from Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican, who said he would support the dividend tax cut plan. Mr. Grassley had expressed reservations about the plan in committee hearings earlier this month.
Senate Budget Committee Chairman Don Nickles, Oklahoma Republican, also continues to work behind the scenes on a budget resolution that would make room for the Bush plan, administration sources said.
Democrats continued to pronounce the stimulus dead, however, and lavished praise on Mr. Greenspan for warning of the damage from rising deficits.
"The chairman has long believed, as have most economists, that while deficits are not instant death, they are over the long term a negative for the economy," said Rep. Barney Frank, Massachusetts Democrat.
He said he was disappointed by Mr. Greenspan's backtracking yesterday but he understood that the Fed chairman, a Republican who served on President Reagan's council of economic advisers, faced strong pressures from Republicans to "go the other way."

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