Greenspan urges discipline
By Richard W. Stevenson
New York Times
Posted Friday September 13, 2002
bayarea.com
WASHINGTON - Alan Greenspan, the Federal Reserve chairman, warned Thursday that the economy would suffer if Congress failed to keep the federal budget deficit under control. But he then advised against the Democrats' efforts to replenish the government's coffers by rolling back or delaying the $1.3 trillion tax cut signed into law last year by President Bush.
Appearing before the House Budget Committee, Greenspan said little about the economy, disappointing investors on Wall Street who had hoped for signs of optimism. Stocks closed lower, with the Dow Jones industrial average falling more than 201 points to 8,379.41, as the market also was hurt by concern about a possible war with Iraq and new indicators of economic sluggishness.
Instead of providing clues to Fed interest rate policy, Greenspan injected himself squarely into the partisan debate over the reasons behind the rapid swing from budget surpluses to deficits.
The message of the Fed chairman's testimony was that a breakdown of budget discipline would lead to higher interest rates and slower economic growth in the long run. Yet in the question-and-answer session, Greenspan seemed to align himself philosophically with Republicans and anger Democrats over how to address the nation's fiscal troubles.
Greenspan said the specifics of dealing with the situation were up to Congress, and he urged the House and Senate to extend budget rules, adopted a decade ago with bipartisan support, that theoretically bar tax cuts and spending increases that are not offset elsewhere in the budget.
But at other points he placed himself in the camp of low-tax conservatives. He suggested that increases in domestic spending should be tightly limited and that it was too late to undo last year's tax cut, even though much of it is not scheduled to take effect for years.
Many Democrats felt betrayed by Greenspan when he gave Bush's tax cut a qualified endorsement early last year, undermining their argument that the tax cut was fiscally reckless. With their warnings that the tax cut could lead to renewed budget deficits having come to pass -- in part as well because of the recession and the costs of fighting terrorism -- Democrats have been trying to turn Greenspan's considerable influence on Capitol Hill to their advantage by emphasizing his demands for fiscal discipline.
Up to a point, Greenspan gave Democrats what they wanted Thursday. He said he still supported an idea he floated last year, to allow tax cuts and spending increases to take effect only if the budget surplus projections that they were based on proved to be on track. Many Democrats have been making a case that a ``trigger'' of the sort proposed by Greenspan would justify canceling or postponing provisions in Bush's tax cut that have not yet taken effect.
But when asked specifically by Rep. Ken Bentsen, D-Texas, whether he would support delaying the scheduled tax cuts, Greenspan said no. |
