(CNSNews.com) - President Bush can count on the support of Federal Reserve Chairman Alan Greenspan in pushing for a tax cut. Greenspan told the Senate Budget Committee Thursday a tax cut would do "noticeable good" for the American economy. He also said he believes a growing budget surplus will give Congress room for such a tax cut, but didn't specify how much.
"In today's context, where a tax reduction appears required in any event over the next several years to assist in forestalling the accumulation of private assets, starting that process sooner rather than later likely would help smooth the transition to long term fiscal balance. And should current economic weakness spread beyond what now appears likely, having a tax cut in place may in fact do noticeable good," Greenspan said.
Greenspan called the American economy's growth in the last five to seven years "truly without recent precedent" and pointed to the increases in personal income.
"Doubling with the growth rate of output per hour has caused individuals' real taxable income to grow nearly two and a half times as fast as it did over the preceding 10 years and resulted in the substantial surplus of receipts over outlays that we are now experiencing," Greenspan said.
Greenspan also used recent budget projections from the Office of Management and Budget to paint a rosy picture of future surpluses. "The most recent projections from the OMB indicate that if current policies remain in place, the total unified surplus will reach 800 billion dollars in fiscal year 2011." Greenspan also predicted the Congressional Budget Office will show "even larger budget surpluses," which prompted one senator to react with "wow."
Before Greenspan began his testimony, Senate Budget Committee Chairman Pete Domenici (R-N.M.) issued his own definition of a "budget surplus."
"The taxpayers of America are paying more taxes than we need. That's sort of my simple definition of a surplus. I believe that it is so large that we can take care of Social Security, by setting it aside under a lockbox," Domenici said.
"When you have that large a surplus, it continues to grow and grow. Every time we have another annual report, it's up a trillion dollars. Somebody's paying too much in taxes and I think we will find that the top one percent of the American taxpayers are the ones paying most of the surplus into the federal government," Domenici said.
Domenici also thinks the federal government has enough money so people can receive a tax cut while government preserves such programs as Social Security and Medicare.
"Believe it or not, I believe you will have sufficient money left over to give President Bush his 1.3 trillion dollar tax cut and you will still have some money left over. I favor giving some of it back to the taxpayer over a 10-year period in a rational and reasonable way," Domenici said.
However, Committee Ranking Democrat Kent Conrad (D-N.D.) urged a more moderate approach.
"We can have a significant tax cut. But I also believe it would be wise for us to establish a strategic reserve, to provide funds to deal with the long-term fiscal imbalances, we still know will occur. We're sort of in the sweet spot of enjoying surpluses, but we know in the years ahead, that we are going to face very substantial deficits as the baby boomers start to retire and twice as many as are now eligible will be eligible for those important programs," Conrad said.