Hearing of the House Budget Committee: Economic Outlook and Current Fiscal Issues

HEADLINE: HEARING OF THE HOUSE BUDGET COMMITTEE

SUBJECT: ECONOMIC OUTLOOK AND CURRENT FISCAL ISSUES

CHAIRED BY: REP. JIM NUSSLE (R-IA)

LOCATION: 210 CANNON HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN

BODY:
REP. RICHARD NEAL (D-MA): Thank you.

Mr. Chairman, let me raise a question with you about amnesia. The Republican majority leader here suggested in the late 1990s-and I say this as one who's been around through this debate through 16 years --

MR. GREENSPAN: I've been engaged with you for 16 years.

REP. NEAL: Yeah, you have, Mr. Chairman, first at the Banking Committee then at the Ways and Means Committee and on the Budget Committee. We've engaged well.

But I want to ask you a couple questions here. The Republican majority leader in the late 1990s said that those votes that we were to take was taking us down the road to a depression. And the chairman of this committee at the time, my friend Mr. Kasich and a good guy, he said that we were headed toward fiscal armageddon with the budget votes that we took with "Bush I" and twice with Clinton. Is it your position that there was a pretty strong economic performance in the mid- to late-1990s?

MR. GREENSPAN: There was indeed.

REP. NEAL: Would you suggest that that investment boom, the maturation of productivity and as we witness it now-it's continuing?

MR. GREENSPAN: Productivity boom certainly is continuing.

REP. NEAL: Productivity boom. So if the economic performance, Mr. Chairman, of the 1990s was so outstanding, what was so bad about the tax system that we had in the mid- to late-1990s?

MR. GREENSPAN: I never said there was something wrong about the tax system in the 1990s.

REP. NEAL: Well, we appreciate that. That helps my point. And Mr. Chairman, let me ask you this. That's the amnesia part. Mr. Chairman, let me ask you this. My friends on the other side repeatedly say that we received and achieved a great victory in the tax cut on capital gains, for example, in 1997. They claim that this was a very important source of economic growth. Well, what was so bad about that system in 1997 that we had to change it with these tax cuts that we have today?

MR. GREENSPAN: Well, first of all, remember that the revenues that were coming in during that period and subsequent to that period were very heavily influenced by the stock market-first, in realized capital gains, and secondly, in the surprisingly large amount-the taxes on the exercise of stock options. That disappeared virtually overnight as the people in California have been observing with some chagrin. So that the illusion of a high revenue input of the system was an illusion which carried on for quite a period thereafter.

If you're asking my judgment, over the longer run, if you do not continuously cut tax rates, you will end up with ever higher taxation, because there is so-called, as you know, drift in the tax brackets called bracket creep. And so in my view, we should be continuously cutting taxes to keep the burden sustained, and that's my general position. It's always been my position.

REP. NEAL: You were party to those conversations apparently with Secretary O'Neill in terms of discussions as to this PAYGO issue. Now, we've been through this again over this decade and a half. Did you support the O'Neill position in those discussions with the president, as to how we should proceed with tax cuts?

MR. GREENSPAN: I was not in the meeting with the president. Is that what you mean?

REP. NEAL: Well, I think that Mr. O'Neill suggests that there were meetings that took place-I think he-I believe he suggests that in "The Price of Loyalty," his book-that the tax cuts should be reduced if the deficits become problematic. Was that a position that you shared? Did you have any discussions? I assume that --

MR. GREENSPAN: I think I may have testified before this committee on that issue.

REP. NEAL: So you would agree with that position?

MR. GREENSPAN: I suggested that triggers ought to be part of the package and that's what he had been discussing-I presume that's what you're referring to the O'Neill -- (inaudible).

REP. NEAL: Yeah, yes it is.

MR. GREENSPAN: I recommended it publicly before this committee.

REP. NEAL: We appreciate your comments and I would ask once again, Mr. Chairman, just as I close-I'm still troubled by the argument that when we all herald the mid- to late-1990s, as a-in terms of great economic achievement, why we had to radically alter the tax structure as we proceeded to this period of time.

And thanks for your testimony.