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Monday, April 25, 2005

Greenspan Defends 2001 Comments on Tax Cuts, Says Calls for Budget Constraints Ignored

From a Washington Times editorial, quotes from Alan Greenspan defending his comments on cutting taxes in January 2001. Greenspan notes that he also called for “triggers” in the same testimony to restrain spending by congress:

Washington Times Editorial, Greenspan and the Democrats' spin, April 25, 2005

…there is little evidence that the Bush administration and Congress have any viable plans to meet the president's commitment to slice the deficit in half over any reasonable period of time. It was in this atmosphere that Federal Reserve Chairman Alan Greenspan testified before the Senate Budget Committee Thursday, declaring, "The federal budget deficit is on an unsustainable path." Mr. Greenspan emphatically warned: "Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse."

As he has done repeatedly in past congressional testimony, Mr. Greenspan implored the senators to re-adopt budget procedures from the 1990s that provided a modicum of discipline to fiscal policy. Those procedures included discretionary spending caps and so-called PAYGO requirements... "Reinstating a structure like the one provided by the [1990] Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process," the Fed chairman told the senators.

…Mr. Greenspan was recommending the use of "triggers" -- and not for the first time… Democratic senators have pursued a revisionist strategy that attempts to place much of the blame for the burgeoning budget deficits on the Fed chairman… Mr. Greenspan told Mr. Sarbanes that the charge was "frankly unfair" because it neglected the Fed chairman's unambiguous endorsement of "trigger" mechanisms during the same testimony. "I advocated tax cuts" in 2001, Mr. Greenspan acknowledged Thursday, "but I also advocated triggers in the same testimony."

…"In recognition of the uncertainties in the economic and budget outlook," Mr. Greenspan said in his prepared remarks in January 2001, "it is important that any long-term tax plan, or spending initiative for that matter, be phased in. Conceivably, it could include provisions that, in some way, would limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied." … "What if," he asked more than four years ago, "the forces driving the surge in tax revenues in recent years begin to dissipate or reverse in ways that we do not now foresee?" That is precisely what happened… the triggers he advocated "never passed, never got any real interest, and as you point out, that's unfortunate, because we would have found that a number of things would have occurred differently. One of the real problems we had was allowing PAYGO to lapse in September 2002, and were we to still be under a PAYGO regime, which I thought worked very well, I think we'd have fewer problems now."

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