Federal Reserve Chairman Alan Greenspan, speaking to the House Budget Committee, reiterated his belief that cutting taxes is a preferable use for the ballooning federal surpluses.
In nearly identical language to what he used five weeks ago, Greenspan said the projections of $5.6 trillion in surpluses over the next decade make it not only possible but preferable that the government return a portion of that money in the form of tax cuts.
He said a surplus of that size would allow the government to significantly cut the federal debt, long his top priority, plus provide tax relief.
Much of Greenspan's testimony Friday was identical to his Jan.
25 comments to the Senate Budget Committee.
However, he did change a section in which he had argued that it
would be harmful to allow the federal government to use the
surpluses to accumulate sizable holdings in the private sector,
either by buying stocks of publicly traded companies or by buying
corporate debt.
"I doubt that it is possible to secure and sustain
institutional arrangements that would insulate federal investment
decisions, over the long run, from political pressures," Greenspan
said.
"Over time, having the federal government hold significant
amounts of private assets would risk sub-optimal performance by our
capital markets, diminished economic efficiency, and lower overall
standards of living than would be achieved otherwise."
Greenspan's remarks five weeks ago provided a major boost for
President Bush's $1.6 trillion 10-year tax cut plan and left
Democrats fuming that the Republican Greenspan was modifying his
position to accommodate the new GOP administration.
Previously, Greenspan for a number of years had repeatedly said
that the No. 1 use of the budget surplus should be to reduce the
national debt.
As he did in his January appearance, Greenspan explained the
switch Friday by saying that the size of the surplus projections
has grown so large — now $5.6 trillion over the next 10 years —
that there is enough room to pay down the debt and provide a
significant tax cut.
Greenspan, however, has refused to endorse a specific size for
the tax cut, saying that decision should be left to Congress and
the administration.
The Fed chairman on Friday repeated his comments about the
difficulty in reducing the national debt to zero, which had been a
goal of the Clinton administration.
— The Associated Press contributed to this report
