On January 25th, 2001 Mr. Greenspan speaking for himself and not as the chairman of the Federal Reserve, chose his words carefully addressing the senate committee on the budget never mentioning President Bush’s name or endorsing his tax plan but instead focusing on the recent revisions of the "on-budget surpluses" for the coming decade and how that surplus should be dealt with? The revisions mean increase in the projected productivity growth of the economy and a bigger surplus for the coming years. What does this mean for the average Joe and Jane Doe taxpayer? According to Mr. Greenspan, tax cuts right about now would seem like the most sensible thing to do.
But he is very cautious in speaking these words to a split senate. "In recognition of the uncertainties in the economic and budget outlook, it is important that any long-term tax plan, or spending initiative for that matter, be phased in." Here he is asking the government not to become too excited with the projections that a lot more money is coming there way and not to get carried away with tax cuts. He wants the surplus to be used foremost to develop a "budgetary strategy that is consistent with a preemptive smoothing of the glide path to zero federal debt or, more realistically, to the level of federal debt that is an effective irreducible minimum."
By consistently lowering the federal debt, the government would be practicing sound fiscal policy for the future. The upsurge that the economy has enjoyed in the last decade would gain momentum and stability in the coming years. Mr. Greenspan also spoke against government acquisition of private assets. He feels that it’s a waste of money and "having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise."
A spending spree is not the answer to the question asked by many economists, what should be the government’s fiscal policy for the next decade? Accumulation of private assets would only create disruptions in the upward economical gain. The answer Mr. Greenspan gave, "In general, as I have testified previously, if long-term fiscal stability is the criterion, it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases."
The right way to deal with the surplus is to give some back to the people. But not by making rash tax cuts but intelligent reductions in taxes. "With today's euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake."
