Add Alan Greenspan to the list of those who say President Bush's $665-billion tax cut package doesn't add up. In appearances before Congress, the Federal Reserve chairman, who has presided over money policy at a time when the stock market and job creation hit record highs, refuted most of the assumptions underlying Bush's deficit-ridden budget.

President Bush has tried to brush off concerns about the $1-trillion debt his tax plan would create over the next five years by saying it would not raise interest rates or harm the economy. Greenspan set the record straight: "Contrary to what some have said, it does affect long-term interest rates and it does have a negative impact on the economy."

As to the Bush claim that the tax cuts are needed to stimulate the economy, Greenspan had a different view. "I am not one of those who is convinced that stimulus is desirable policy at this point," he said. The economy will strengthen on its own, he explained, but is being held back now by fear of war in Iraq.

Greenspan also countered another of the president's key assumptions -- that the massive tax cuts would be offset by economic growth. While the economy will improve, Greenspan said, that growth "is not likely to be the full solution to the currently projected long-term deficits." Instead, he suggested that Congress tighten the reins on both tax cuts and spending, which once expanded are "extraordinarily difficult to trim or shut down."

Treasury Secretary John Snow desperately latched onto Greenspan's favorable comments about the proposed tax exemption for dividends, the centerpiece of the Bush plan. Snow must not have been listening closely. While Greenspan endorsed the concept, he warned that the lost taxes should be offset by either a tax increase elsewhere or spending cuts. The White House would actually increase spending while it cut taxes.

The response from conservative Republicans was predictable: They attacked the messenger. Sen. Jim Bunning, R-Ky., suggested that it was time for Greenspan to step down. Yet it will be difficult to damage Greenspan's credibility. After all, he gave his blessing to Bush's massive 2001 tax cut, back when the economy was running surpluses.

President Bush's current tax proposal is looking more irresponsible to more people. On the same day Greenspan spoke, 450 economists (10 of them Nobel laureates) signed a letter opposing the Bush plan. Chronic deficits will "reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure and basic research," the economists wrote.

Will any of this make a difference in Congress? It should. Greenspan has helped explain why the Bush tax cuts aren't a way out of our economic problems, but would only make them worse.

Back to Opinion

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright

From the Times
Opinion page