Federal Reserve Chairman Alan Greenspan yesterday defended his support of tax cuts in 2001 after Sen. Hillary Rodham Clinton (D-N.Y.) suggested that he bears some blame for helping create the federal budget deficits that followed those cuts.
But Greenspan, testifying at a congressional hearing, also said "we were all wrong" in early 2001, when he and other government economists forecast huge federal budget surpluses for years to come.
Sen. Hillary Rodham Clinton says Federal Reserve Chairman Alan Greenspan deserves some of the blame for the budget deficit. He says everyone was wrong in forecasting continuing surpluses.
Greenspan, addressing the Senate's Special Committee on Aging, again expressed support for creating individual Social Security accounts, saying a "major attraction" of the idea is the opportunity to segregate some payroll tax revenue from the rest of the federal budget so Congress cannot spend it.
"We need, in effect, to make the phantom 'lock boxes' around the trust fund real," Greenspan said, referring to suggestions in the late 1990s of finding some way to prevent Congress from spending surplus Social Security revenue.
Without access to that revenue, Congress would have to confront larger federal budget deficits, possibly feeling more pressure to reduce them, Greenspan said.
Clinton responded by recalling Greenspan's January 2001 testimony urging Congress to cut taxes to prevent the then-growing surpluses from getting too big.
"Your testimony helped blow the lid off the lock boxes," Clinton said, referring to the size and nature of the tax cut passed that spring, and the budget's subsequent swing from surplus to deficit.
Clinton alluded to her opposition to Bush's 2001 tax cuts by adding later, "Just for the record, we were not all wrong."
Greenspan reminded the committee that in January 2001, economists at the Office of Management and Budget, Congressional Budget Office and Federal Reserve all forecast higher federal surpluses.
He supported tax cuts at that time, he said, adding that today "I would recommend exactly what I recommended then" if presented with the same information.