- The Washington Times - Saturday, January 27, 2001

In testimony before the Senate Budget Committee Thursday, Federal Reserve Board Chairman Alan Greenspan left no doubt that he welcomed the change in fiscal policy that President Bush's 10-year, $1.6 trillion tax cut would entail.

As expected, Mr. Greenspan declined to embrace the specifics of Mr. Bush's campaign proposal for tax relief, saying it would be inappropriate to do so because it was "fundamentally a political decision." But he reminded the committee that he had always favored reducing marginal tax rates in order to "maximize" both economic efficiency and the allocation of assets. In his prepared testimony, Mr. Greenspan observed that "most economists" believed that "tax policy over the longer run" should focus on "setting [tax] rates at the levels required to meet spending commitments." That's "Fedspeak" for endorsing the lowest possible marginal rates necessary to maintain long-term budgetary balance. A lower-tax-rate system is preferable to a higher-rate system, Mr. Greenspan explained, because it "minimizes distortions, increases efficiency and enhances incentives for saving, investment and work." As it happens, an across-the-board marginal-rate reduction forms the centerpiece of Mr. Bush's proposal, representing more than 50 percent of the total 10-year tax cut.

Rebutting Democratic charges during and after the presidential campaign that a major tax cut would be nothing but a "risky scheme," the Fed chairman instead promoted the idea as both fiscally prudent and necessary. As a matter of fact, Mr. Greenspan characterized the size of the Bush plan as an "average" tax cut by historical standards.

Democrats on the committee were disheartened by Mr. Greenspan's endorsement of a major tax cut, suggesting that he had flip-flopped from his earlier emphasis on debt reduction. Sen. Robert Byrd, the Democratic senator of West Virginia who has been cavalierly spending the American taxpayers' money as a member of the Senate Appropriations Committee for more than 40 years, told Mr. Greenspan that he was "somewhat stunned" by what he perceived to be Mr. Greenspan's "wavering" from his earlier position as "the anchor of efforts for fiscal responsibility."

Nothing could be further from the truth. Mr. Greenspan's position has been quite consistent. It has been the appropriations process that has broken down as a bipartisan Congress conspired with the Clinton-Gore administration to bust the spending targets established by the 1997 balanced-budget legislation. "[A]s I have testified previously," the Fed chairman reminded the senators, "if long-term fiscal stability is the criterion, it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases." Mr. Greenspan's assessment was as blunt as it was accurate. "The flurry of increases in outlays that occurred near the conclusion of last fall's budget deliberations is troubling because it makes the previous year's lack of discipline less likely to have been an aberration," the Fed chairman asserted, adding that "history illustrates the difficulty of keeping spending in check."

In any event, reductions in both taxes and the federal debt held by the public are not mutually exclusive. What seemed to upset some Democrats is that Mr. Greenspan once again made it clear that tax reductions represented the sort of "surplus-lowering policy initiatives" he preferred. As Mr. Greenspan asserted that tax relief should begin "sooner rather than later."


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