Greenspan blunts argument that cuts risk return of big federal deficits

Battle over tax cuts begins anew

Posted: Wednesday, January 31, 2001

WASHINGTON -- Less than two weeks into the new administration, political lines are drawn for an old debate, with Republicans seeking big tax cuts that Democrats say would benefit the wealthy, shortchange domestic programs and risk renewed deficits.

President Bush's $1.6 trillion plan ''threatens our prosperity and could return us to the big deficits of the 1980s,'' House Democratic Leader Dick Gephardt said in his party's first response to the new president's weekly radio address.

It's an argument Democrats used to devastating political effect when deficits were big, Republican Newt Gingrich was House speaker and Bill Clinton held the White House.

But now, the deficits are gone and Republicans have control of the White House and Congress -- and have an influential ally at the Federal Reserve, as well. ''I must say, I never expected to see the day where I would be talking about anything other than reducing the debt,'' Fed Chairman Alan Greenspan told Congress last week.

With those words, Greenspan blunted the argument that tax cuts risk the return of deficits, almost before Democrats could begin to make it.

The Fed chairman also advocated tax cuts, and buoyed Bush and the Republicans by giving his blessing to across-the-board rate cuts.

House Speaker Dennis Hastert, R-Ill., said later that Greenspan's testimony ''confirmed that the path advocated by President Bush and the Republican Congress is the right one. Fiscal discipline combined with tax relief will keep our economy growing.''

Democrats, who had just finished congratulating Greenspan on his stewardship of the economy, grumbled, none more so than Sen. Paul Sarbanes. The Maryland Democrat said an accurate description of Greenspan's testimony was that he had taken ''the lid off the punchbowl.''

For their part, House Republicans intend to move quickly to counter a second charge by the political opposition.

Several GOP sources, speaking on condition of anonymity, say one of the first bills the Republican leadership puts on the House floor this year will be ''lock box'' legislation to safeguard Social Security and Medicare payroll tax receipts.

The details remain to be worked out, and several sources said administration officials are concerned that the Medicare provision might limit their ability to fashion a budget.

Politically, though, Republicans acknowledge it is designed to shield them from attack by Democrats.

So, too, Hastert's desire to pass small pieces of a tax cut early in the year, rather than the entire $1.6 trillion, 10-year package all at once. That's a variation on last year's theme, when congressional Republicans broke their large tax cut into pieces, and were able to gain Democratic votes for an estate tax repeal.

At the same time, Republicans will soon begin to argue that surpluses would be even greater if it weren't for spending programs Clinton insisted on in his last two years in office.

Democrats appear to be on somewhat stronger political ground there. Their calls for money to hire teachers, build classrooms and provide prescription drugs for Medicare recipients all test well in the polls, and Bush sweetened his education proposal last week even before he submitted it to Congress.

Senate Minority Leader Tom Daschle, D-S.D., Gephardt and other Democrats are likely to hit hard on that point throughout the tax-cut debate that is likely to last for months.

Daschle argued last week that virtually the entire 10-year surplus, not counting Social Security and Medicare funds, would be consumed by Bush's tax cut and increased defense spending.

Bush's tax cut plan, he jabbed, ''leaves no room in the budget for 'leaving no child behind,''' -- a reference to the president's campaign slogan on education.

To make room for more domestic spending, Democratic leaders favor smaller, targeted tax cuts, and are likely to try to unify the rank and file around an alternative to the Republicans.

Bush had a ready answer to that.

Greenspan, he said, got it ''just right.''

David Espo is the AP's chief congressional correspondent.

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