Wednesday, March 16, 2005

Greenspan Finally Taking Heat for Tax Cut Endorsement

Alan Greenspan, the chairman of the Federal Reserve, defended himself on Tuesday against Democratic lawmakers who say he contributed to soaring budget deficits by endorsing President Bush's tax cuts in 2001.

Mr. Greenspan acknowledged that he and many others had been wrong to expect trillions of dollars in surpluses that never materialized.

But in testimony before the Senate Special Committee on Aging, he said almost all budget analysts were predicting a stream of large surpluses at the time.

"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then," Mr. Greenspan said. "It turns out we were all wrong."

His defense was a response to rising criticism from some Democrats.

Senator Hillary Rodham Clinton, Democrat of New York, told Mr. Greenspan on Tuesday that his support for tax cuts had set the stage for the government to spend surpluses that were building up in the Social Security trust fund's "lock box."

"Your testimony helped blow the lid off the lock boxes when it came to the size of the tax cut, the extent of the tax cut," Mrs. Clinton said.

Senator Harry Reid of Nevada, the Senate Democratic leader, recently called Mr. Greenspan "one of the biggest political hacks" in Washington. On Monday, Senator Byron Dorgan, Democrat of North Dakota, called Mr. Greenspan an "enabler" of the administration's fiscal policies. The criticism has intensified partly because Mr. Greenspan has cautiously supported Mr. Bush's idea of letting people divert some of their payroll taxes to private retirement accounts.

Most analysts say Mr. Bush's plan would force the government to borrow trillions of dollars over the next several decades, because the government would have to pay full benefits to people who are at or near retirement age right now. Supporters say the government would recoup the cost as future retirees get most of their benefits from private accounts rather than the government.

Confronted by Mrs. Clinton, Mr. Greenspan said his support for tax cuts in 2001 was based on nearly unanimous expectations of large budget surpluses for many years, a cumulative surplus of $5.6 trillion by 2011, according to the Congressional Budget Office at the time.

"We were confronted at the time with an almost universal expectation amongst experts that we were dealing with a very large surplus for which there seemed to be no end," Mr. Greenspan said.

Mr. Greenspan acknowledged that he had wanted to reduce the budget surplus, but said he also proposed "trigger" mechanisms for Congress to re-evaluate the tax cuts if the budget forecasts proved wrong.

As it turned out, federal deficits rose as tax revenues plunged for three years in a row and spending increased in areas including war costs, education and domestic security. What was expected to be a $5.6 trillion surplus by 2011 is now expected to be at least a $4 trillion deficit by 2015 if the tax cuts are made permanent.
Source: 'Greenspan Defends His Support of Tax Cuts', Edmund L. Andrews, New York Times, March 16, 2005

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