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Friday, 26 January, 2001, 16:38 GMT
Momentum builds for US tax cuts
Greenspan tells senators tax cuts may be worthwhile
In backing tax cuts, Alan Greenspan said they should occur sooner rather than later
Comments by the head of the US central bank before the Senate on Thursday are being viewed as a ringing endorsement of President George W Bush's tax-cut scheme.

Efforts by Democrats to forestall the Bush tax-cut plan have far less momentum now that Federal Reserve chairman Alan Greenspan has said they might be a good idea.

President Bush was pleased by Greenspan's comments
President Bush was pleased by Mr Greenspan's testimony
"Should current economic weakness spread beyond what now appears likely, having a tax cut in place may, in fact, do noticeable good," Mr Greenspan said.

In making that statement, the chairman greatly enhanced Mr Bush's hand in getting a tax cut through the Congress.

Mr Bush has in recent week been touting his tax cut plan as a way to salvage the US economy from recession.

The Federal Reserve chairman took pains to point out, however, that no tax cut could ease the current downturn in the US economy.

Should current economic weakness spread beyond what now appears likely, having a tax cut in place may, in fact, do noticeable good

Federal Reserve chairman Alan Greenspan

But some of the Fed chairman's comments were viewed as contradictory. Even as he endorsed tax cuts, he warned that they could not be implemented quickly enought to thwart an economic recession.

"If you're going to do it in any event - you can't expect tax cuts to do all that much," he said.

Economic slowdown

Mr Greenspan expressed concern over a still slowing national economy. In his testimony to the US Congress, he told senators that "as far as we can judge, we have had a very dramatic slowing down. We are probably very close to zero [growth] at this particular moment."

His unease was bolstered on Thursday by a report by the National Association of Realtors that showed home sales, excluding new homes, fell 7.4% in December, far greater than the 2% drop analysts expected.

Following the Fed chairman's appearance before the Senate Budget Committee, the new president expressed satisfaction in Mr Greenspan's report, even though he had failed specifically to support Mr Bush's $1.6 trillion tax-cut proposal.

Following the testimony, Mr Bush said he was "pleased to hear Mr Greenspan's words", noting that he did not expect the chairman to roundly support his plan. "His job is to report to Congress in an objective way, and that's exactly how I read it."

Angry Democrats

Mr Greenspan's testimony irked some committee members, especially Democrats, who felt Mr Greenspan's comments opened the floodgates to fiscal carelessness .

"It wouldn't be far off the mark for the press to carry the story 'Greenspan Takes Lid Off of Punch Bowl,' because your position in the past has consistently been that the surpluses should be devoted to reducing the debt," said Maryland Senator Paul Sarbanes.

"I'm your friend... but in all candour you shock me with your statement," said Senator Ernest Hollings, a South Carolina Democrat.

Mr Greenspan seemed at times irritated by the efforts of Democrats to criticize his latest views. He repeatedly referred to a report issued by former President Bill Clinton just before he left office that showed government surpluses growing by ever-increasing amounts.

He cited the Clinton report as the cause for his backing away from his hawkish view on reducing the national debt. "Have my views changed? Yes, they've changed. They have to change. I see no alternative to that," Mr Greenspan said. "I still hold the number one priority is reducing the debt. The problem is we're going to get that out of the way far sooner than any of us imagined."

More interest-rate cuts

US financial markets await a decision on interest rates by the Federal Open Market Committee, which meets on 30 and 31 January.

While some analysts expect a rate cut of 0.25%, others expect a cut equal to the Fed's earlier reduction of 0.5% - especially after Mr Greenspan's remarks about the state of the economy.

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See also:

26 Jan 01 | Business
Greenspan backs tax cuts
25 Jan 01 | Americas
Growth in US economy almost zero
24 Jan 01 | Business
Bush downbeat on economy
03 Jan 01 | Business Basics
Alan Greenspan: market mover
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