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Greenspan Testifies Tax Cut Would Benefit Economy

Aired January 25, 2001 - 1:01 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU WATERS, CNN ANCHOR: Some kind of tax cut is a good idea, but it's no quick fix for the economy. So says the man who's widely credited for the economic boom of the 1990s, Federal Reserve Chairman Alan Greenspan. Greenspan testified today about taxes and the economy before the Senate Budget Committee.

Peter Viles of CNN Financial News is on Capitol Hill following closely. What's it all about?

PETER VILES, CNN CORRESPONDENT: Lou, this is a significant shift in what Greenspan has said about taxes. In the past, he has always said the surplus should be used to pay down debt. But today, a significant shift in tone. He says the surplus is growing so fast, appears to be so big, that the government shouldn't hold on to all of it, and a tax cut is the right solution.

He didn't talk about how big the tax cut should be. He didn't talk about President Bush's tax cut in specific, or what rates should come down. But he said this is a good idea. It should be done sooner rather than later and it should be phased in.

That said, he said it probably won't provide an immediate boost to the economy. Here's what he said about that.

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE BOARD: Lately, there's been much discussion of cutting taxes to confront the evident pronounced weakening in recent economic performance. Such tax initiatives, however, historically have proved difficult to implement in the time frame in which recessions have developed and ended.

(END VIDEO CLIP)

VILES: Now, Greenspan was asked specifically about the Bush tax cut proposal, said it wouldn't be appropriate for him to comment on that, as it is a political decision. And then in the question-and- answer period, which continues now behind me in the hearing room, he was asked about the state of the economy, and he said the economy continues to slow dramatically and is "very close to zero" in economic growth. That's a little bit more pessimistic than what we've heard from most economists, who think we mat be in the one or two percent growth range. But Greenspan saying today, we are very close to zero. So if you're hoping for a tax cut, if you will, he had good news on that. If you're worried about the state of the economy, this is a little bit more negative than what we've heard from him in the recent past -- Lou.

WATERS: If, Peter, a tax cut will not help the economy, why have the tax cut at a time like this, when the economy is slowing so much?

VILES: Well, he says it's the good thing to do in the in long term because the government is paying down debts so rapidly and running these big surpluses that you will get to a point sometime down the road eight years where the government will have paid all the debt and will have extra money. And he says that's a bad situation, for the federal government to be walking around with $500 billion a year to invest. Where's the government going to put it? How is it going to make a decision of where to put it?

You need to take that issue off the table so that the government doesn't have to worry about what it would do with extra money after the debt is paid off. Chairman Greenspan says the best way to do that is to have a plan to use that money, either to spend it or reduce taxes. He believes reducing taxes is better than increasing federal spending.

WATERS: All right, Peter Viles, in Washington.

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