"I am pleased to welcome Chairman Greenspan before the Committee on Banking, Housing, and Urban Affairs this morning to testify on the Federal Reserve's Semi-Annual Monetary Policy Report to Congress.
"Yesterday, a statement signed by over 450 economists, including 10 Nobel Prize winners, was released. At the outset of today's hearing I think it would be worthwhile to read parts of that statement because it helps to frame the economic issues that will be under discussion this morning:
'Economic growth, although positive, has not been sufficient to generate jobs and prevent unemployment from rising. In fact, there are now more than two million fewer private sector jobs than at the start of the current recession. Overcapacity, corporate scandals, and uncertainty have and will continue to weigh down the economy.
'The tax cut plan proposed by President Bush is not the answer to these problems. Regardless of how one views the specifics of the Bush plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near-term. The permanent dividend tax cut, in particular, is not credible as a short-term stimulus. As tax reform, the dividend tax cut is misdirected in that it targets individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue-neutral tax reform effort.
'Passing these tax cuts will worsen the long-term budget outlook, adding to the nation's projected chronic deficits.'
"When President Bush came into office in January 2001, the federal government had a projected ten-year surplus of $5.6 trillion. In fact, Chairman Greenspan, you testified before the Senate in favor of the tax cut proposed by the President at that time on the ground that the government was paying off its debt too fast. You argued that a tax cut was needed to "smooth the glide path", I believe that was the phrase you used, so that the government debt would not be paid off too quickly and put the government in the position of acquiring private assets.
"That is not the problem we confront today. If the President's program were enacted into law, the budget projection for the same ten-year period would be a $2.1 trillion deficit. That is a $7.7 trillion reversal. That does not include the costs of a possible war with Iraq. It also does not include tax changes such as the reform of the alternative minimum tax and the extension of tax provisions currently scheduled to sunset which have traditionally been extended. That projection may well be overly optimistic.
"By any measure, we are in the process of transforming the fiscal position of the United States from one of fiscal surplus to one of large fiscal deficits. Given the scale of the deficits that would be created by the President's plan, fundamental questions are raised about the impact of deficits on interest rates, investment, growth, and jobs in our economy.
"The Administration is downplaying the impact of budget deficits, arguing the deficits that will result from their program are not that large relative to the economy, and that their size will be reduced by the economic activity that will result from the enactment of its proposed tax cuts. Some of the people who now support these tax cuts, and discount the significance of the budget deficits they would produce, previously supported an amendment to the Constitution requiring a balanced budget.
"Particularly in the face of the uncertain demands on public resources imposed by the war on terrorism, homeland defense, difficulties with North Korea, and a possible war with Iraq, I believe the President's proposals are reckless and irresponsible.
"Giving away our economic strength with the kind of irresponsible tax cuts proposed by the President would not only deny us the public resources we will need to meet future challenges. It would put upward pressure on long-term interest rates that would reduce economic growth and impose greater hardship on middle and working class Americans.
"I look forward to reviewing these issues with Chairman Greenspan this morning."