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Greenspan Says Tax Cut Preferable to Higher Spending
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Federal Reserve Chairman Alan Greenspan, speaking to the House Budget Committee, reiterated his belief that cutting taxes is a preferable use for the ballooning federal surpluses.

In nearly identical language to what he used five weeks ago, Greenspan said the projections of $5.6 trillion in surpluses over the next decade make it not only possible but preferable that the government return a portion of that money in the form of tax cuts.

He said a surplus of that size would allow the government to significantly cut the federal debt, long his top priority, plus provide tax relief.

Much of Greenspan's testimony Friday was identical to his Jan. 25 comments to the Senate Budget Committee.

However, he did change a section in which he had argued that it would be harmful to allow the federal government to use the surpluses to accumulate sizable holdings in the private sector, either by buying stocks of publicly traded companies or by buying corporate debt.

"I doubt that it is possible to secure and sustain institutional arrangements that would insulate federal investment decisions, over the long run, from political pressures," Greenspan said.

"Over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise."

Greenspan's remarks five weeks ago provided a major boost for President Bush's $1.6 trillion 10-year tax cut plan and left Democrats fuming that the Republican Greenspan was modifying his position to accommodate the new GOP administration.

Previously, Greenspan for a number of years had repeatedly said that the No. 1 use of the budget surplus should be to reduce the national debt.

As he did in his January appearance, Greenspan explained the switch Friday by saying that the size of the surplus projections has grown so large — now $5.6 trillion over the next 10 years — that there is enough room to pay down the debt and provide a significant tax cut.

Greenspan, however, has refused to endorse a specific size for the tax cut, saying that decision should be left to Congress and the administration.

The Fed chairman on Friday repeated his comments about the difficulty in reducing the national debt to zero, which had been a goal of the Clinton administration.

The Associated Press contributed to this report

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