Fed chief: Tax cuts fueling deficits
Greenspan says Congress misread his limited support
WASHINGTON -- Federal Reserve chairman Alan Greenspan said yesterday that his support for tax cuts in early 2001 unintentionally encouraged policies that helped swing the federal budget from surplus to record deficits. In addition, he said for the first time explicitly that he expected tax increases to be part of any bipartisan agreement on deficit reduction.
But Greenspan, during a Senate Budget Committee hearing, said it was unfair for critics to ignore warnings in his January 2001 testimony that the surplus forecasts might be wrong, and his recommendation of some ''trigger" mechanism that would limit tax cuts if certain budget targets were not met. ''I think it's frankly unfair" for critics to blame him for the fact that Congress chose to ''read half my testimony and discard the rest," he said.
Senator Paul Sarbanes, Democrat of Maryland, chided the Fed chief that he is well aware of how Congress works and should have known lawmakers might not heed all his cautions. Sarbanes said it was ''fair" for lawmakers to see Greenspan's 2001 remarks ''as a green light to the tax cuts," which were enacted without any triggers.
In May 2001, Congress passed a reduced form of President Bush's proposal, a tax cut worth $1.35 trillion over 10 years.
The exchange between the two men came at a hearing on how to rein in the budget deficit, at $412 billion last year and projected to expand dramatically in coming decades, particularly if changes are not made to the Social Security and Medicare programs.
''The federal budget deficit is on an unsustainable path," Greenspan said, and could cause ''the economy to stagnate or worse."
He called for ''major deficit-reducing actions" and acknowledged tax increases may be part of an agreement between the two parties.
GOP leaders have ruled out tax increases to shrink the deficit; on the contrary, they want to extend expiring tax-cut provisions and pass tax breaks for energy companies.
