Fed Chief Not Worried About Effect Of Tax Cut

by Mike Godfrey, Tax-News.com, Washington

22 June 2001

When questioned by Democrat senators on Wednesday, Federal Reserve chairman Alan Greenspan, made it clear that he was not concerned that the recent $1.35 trillion tax cut might plunge the federal budget into deficit. Sen. Charles Schumer and others tried to prod the central bank chief into admitting concern over the measure, which was essentially the centre piece of George Bush's economic policy. However, when asked whether he was worried about a potential slide back into government deficit spending, he replied with a resounding 'I'm not, senator.'

Mr Greenspan lent his support to Bush's tax cut when the proposal was made in January, and has since said that he believes that reducing taxes is a preferred use for ballooning budget surpluses. So far this year, the Federal Reserve has made several aggressive moves in order to pull the country back from a recession, and tax refund checks, which will be in the mail for Americans from next month, are expected to give the economy a shot in the arm. In addition to the massive tax cut, the Fed has slashed interest rates five times already this year, at half a percentage point each time.

However, there are those who fear that it may all be to no avail, and that the country could still tip into a recession before the stimulus from the tax and rate cuts kicks in. Despite Mr Greenspan's public confidence, economic growth in the US remains slow, and several Federal Reserve Officials are becoming increasingly twitchy about the length of time that it is taking for the measures to take effect. Although some analysts are predicting that policy makers will take a sixth slash at interest rates when they meet at the end of June, the climate of uncertainty will assuredly make it more difficult for them to decide whether, and by how much, to cut rates.

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