In January 2001, Bush proposed tax cuts estimated to cost $1.6 trillion over 10 years. Democrats proposed different cuts worth half as much.
Greenspan testified then that growing surpluses would enable the government to quickly pay down its debt, providing the government with an enormous amount of money to invest or spend.
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.
He expressed concern then that the government might invest the money in stocks, distorting financial markets, or increase spending.
Greenspan did not endorse Bush's specific proposal but gave it a huge political boost at the time by saying tax cuts appeared "required" and recommending that Congress start the process "sooner rather than later."
Greenspan warned several times in his 2001 testimony that the forecasts might be wrong. So he also recommended that any tax cuts be accompanied by some "trigger" that would limit them if certain surplus or debt targets were not met.
In May 2001, Congress passed a reduced form of Bush's tax cut, worth $1.35 trillion over 10 years, without any such "triggers."
Greenspan noted yesterday that he has supported extending the Bush tax cuts, but only if the revenue losses are offset by other spending reductions or tax increases so there is no growth in the budget deficit.
He also reminded Clinton that he has argued against both "excess" deficits and surpluses.
His support for deficit reduction helped win passage in 1993 of President Bill Clinton's budget, which included tax increases.
After the budget deficit swung into surplus in 1998, he recommended that Congress "let the surpluses run" rather than cut taxes, to pay down government debt.
When Vice President Al Gore ran for president in 2000, he proposed creating a "lock box" for Social Security revenue. Greenspan recalled yesterday how many people were "amused" by the idea.
"But," Greenspan said, "it actually was a very thoughtful insight as to what the real problem is."