- The Washington Times - Thursday, February 15, 2001

In his semiannual testimony about monetary policy before the Senate banking committee on Tuesday, Federal Reserve Board Chairman Alan Greenspan delivered a more upbeat prognosis of the U.S. economy than he had outlined in his testimony before the Senate Budget Committee late last month. While he acknowledged that "downside risks [still] predominate," Mr. Greenspan specifically pointed to the better-than-expected 0.7 percent increase in retail sales for January. "The exceptional weakness so evident in a number of economic indicators toward the end of last year," Mr. Greenspan observed, "apparently did not continue in January."

For his part, President George W. Bush called the retail sales report "one good statistic amongst a sea of some pretty dismal statistics" and said he remained "concerned about the economy." Indeed, relating to those concerns, Secretary of the Treasury Paul O'Neill also testified on Capitol Hill Tuesday. Appearing before the House Ways and Means Committee to argue the administration's case for its 10-year, $1.6 trillion tax-relief program, Mr. O'Neill told the tax-writing committee that "quicker is better, given the softness of the economy we are experiencing now." To address the economic slowdown, which, according to the Fed's analysis, had not yet evolved into the initial stages of a recession, Mr. O'Neill rightly urged Congress to enact, retroactive to Jan. 1, two aspects of the tax cut. Specifically, he implored Congress to begin phasing in both the reductions in marginal income tax rates and a doubling of the child tax credit.

"Cutting income taxes" retroactive to Jan. 1, Mr. O'Neill persuasively argued, "can help keep this downturn from taking root." On this count, however, Mr. Greenspan seemed to differ, if only because he was skeptical about Congress's ability to pass tax reduction legislation "sufficiently quickly" to forestall the onset of a recession. In his January testimony, however, Mr. Greenspan argued that "having a tax cut in place may, in fact, do noticeable good" in the event that "current economic weakness spread[s] beyond what now appears likely."

It's worth noting that Mr. Greenspan and Mr. O'Neill are in total agreement with the idea that reducing tax rates increases economic efficiency and growth. Now, regarding Mr. Greenspan's concern about acting "sufficiently swiftly," House Majority Leader Dick Armey said Tuesday that the House would likely vote on a retroactive income tax rate reduction by March.

President Bush is surely right to be concerned that the economic weakness of late last year may spread and intensify. Indeed, the Fed's congressionally mandated report detailed just how serious the slowdown was in the fourth quarter. Not only have household and business expenditures "decelerated markedly in recent months, but consumer purchases of durable goods actually declined, as did business fixed investment in equipment and software. Meanwhile, the household debt-service burden "increased to levels not seen since the late 1980s," and earnings reports of corporations for the fourth quarter indicate that "profits fell sharply." The Fed report also projected that exports declined during the fourth quarter, "reflecting in part a slowing of economic growth abroad." The Fed projected that growth would remain below its potential rate during the first half of 2001.

All of these facts argue for immediate tax relief. As Mr. O'Neill put it, "quicker is better."

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