Hearing of the Senate Banking, Housing and Urban Affairs Committee - Renomination of Alan Greenspan as Federal Reserve Chair

Federal News Service

HEADLINE: HEARING OF THE SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE

SUBJECT: THE RENOMINATION OF ALAN GREENSPAN AS CHAIRMAN OF THE FEDERAL RESERVE BOARD OF GOVERNORS

CHAIRED BY: SENATOR RICHARD SHELBY (R-AL)

WITNESS: ALAN GREENSPAN, CHAIRMAN OF THE FEDERAL RESERVE

LOCATION: 538 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

BODY:
SEN. CHARLES SCHUMER (D-NY): Thank you, Mr. Chairman. And I am pleased to be here. As a New Yorker I'm particularly proud. New York has made countless contributions to our nation, and you're not the least of them, Mr. Chairman. So thank you for the good work that you do. Your longevity is testament to your excellence. Markets and the nation breathed a sigh of relief when you agreed to serve another term, and with good reasons. Your integrity, your intelligence, your ability to balance prosperity and inflation-a very difficult thing to do-are second to none and I, for one, am delighted that you are going to serve another term, and am enthusiastic about your renomination.

I would just make one point in disagreement. And that is, it seems to me that as I think your role in the bully pulpit is a good role, I must respectfully disagree with my colleague. I think we have too few people who look out for the long-term health of the nation. And if the Federal Reserve chairman doesn't do that, who will? But in those pronouncements, my one concern here is that your voice against too much spending that creates deficits seems to be a lot stronger than your voice against tax cuts that threaten the deficit. And I hope that in your next term you will strengthen your voice against unbalanced tax cuts that threaten the viability of our recovery through overwhelmingly large deficits.

Having said that, my view is you've been an A-plus chairman and I'm glad you'll continue to be.

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SEN. SCHUMER: Thank you, Mr. Chairman.

And again, thank you, Mr. Chairman, for your good work. My concern are the deficits. It's sort of interesting that when we get good economic news, the stock market doesn't go up but goes down sometimes in the last few months. And even if we have a very strong recovery in the next several months, my worry is about its longevity because of the large deficits that we have.

Given the fact that the deficits are at large levels-we can debate how they compare historically; it's high historically. Some people say higher than at other times; some people say, well, about the same or a little less. But they're high, or certainly higher than you thought or anyone thought they would be in 2001.

Do you think we ought to make the tax cuts that were temporarily extended in the last tax bill permanent, as the president is seeking to do?

MR. GREENSPAN: Well, senator, let me answer that in two parts. First, I've always been strongly supportive of the elimination of the double taxation on dividends, largely because I've always considered it a type of tax which probably impeded capital expansion and economic growth as a consequence. So I was very strongly supportive-and remain supportive-of those types of taxes, including marginal tax rate cuts. But I also have been consistently supportive of maintaining pay-go and discretionary caps on spending. And I would very much-was very much concerned in September of 2002 when the fairly effective caps and pay-go were allowed to lapse. I would hope that the Congress will put them back in place, as they were back then, and in that context obviously I'm stipulating that because the individual tax cuts, which I find very important, would lapse, they would under the rubric which I'm discussing be required to go through a pay-go valuation in order to be passed.

SEN. SCHUMER: So-and, as you know, we're debating this right now in the budget resolution, and there are many who want pay-go for spending and not for tax cuts.

MR. GREENSPAN: Yeah. Well --

SEN. SCHUMER: And my question to you is twofold: One, should pay-go be enacted for both spending and for tax cuts? And, two, if Congress should fail to enact pay-go legislation in this budget resolution, so we'd be faced with the choice of making the tax cuts permanent without offsets in spending or in other taxes, would you be for making those permanent?

MR. GREENSPAN: Let me just say this: that I believe that the legislation which was in place prior to September 2002 in my judgment was a correctly balanced legislation. I mean, I, as I've often stated, think of the real problem over the longer term as constraining spending, because I think there's a bias in the way our system functions. But I think looking at the issue from the point of view of fiscal policy, asymmetry is required in the way one looks at that. So I would-I am not willing to acknowledge the fact that pay-go will not be put back in place.

SEN. SCHUMER: Right, but if it weren't? Because I will tell you the odds-and there are some people sitting around this room who are under big pressure to sort of not do it. If it weren't would you-and this is an important question because of what was mentioned-if we did not enact pay-go the way we had it in 2002 on the tax side, and Congress were to enact-should Congress enact permanent tax cuts without offsets on either the spending or tax side?

MR. GREENSPAN: Well --

SEN. SCHUMER: Because that will increase the deficit even further if it does, if we do that.

MR. GREENSPAN: I'm aware of that, and I'm reluctant to answer that question, largely because I don't want to get involved into the details of negotiations beyond the positions that I've taken. So I can't-there's lots of hypothetical questions which --

SEN. SARBANES: Well, some of us think you've already answered it by your answer on the pay-go question --

MR. GREENSPAN: Well, the senator presumes otherwise.

SEN. SCHUMER: Yeah, okay. Well, I will-I mean, I just think this is an important issue, and your words are very important. They get interpreted in many different ways. And I'm looking for as clear an answer as possible. I think I can read the same thing that Senator Sarbanes did, but there are going to be many who say, No, that's not the case. And if we end up at the end of this congressional session with a further increase in the deficit, I think that will bode real trouble for the recovery. I guess you would agree with that?

MR. GREENSPAN: I actually am somewhat less concerned about the short-term budget deficit, because I think given what appears to be a fairly solid recovery, which has-seems to have legs to it-revenues are going to be reasonably good over the next fiscal year. And I think that that will contain the deficit.

However, there are just no-there is no way to look at the longer-term trends of our fiscal system without concluding that we will run into fairly serious difficulty in the next decade-say, 2011 and forward-as the very large increase in baby boomer-baby boom retirees leave the labor force and join retirement. The numbers I find very disturbing, and I think that while I appreciate that that's seemingly a number of years off, it's not far enough into the future to say we can handle it at another time. I think the time in which addressing the size of the commitments made for the next generation of retirees relative to the economic resources we're likely to have to finance them, I find deficient and disturbing.

SEN. SCHUMER: Yeah, I thank you, Mr. Chairman. My time is expired. I'd just note that a lot of these permanent tax cuts would take effect in that 2010, 2011, 2012 time when the crunch will occur. Thank you, Mr. Chairman.