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Fed Nominee Says He Will Avoid Fray Of Politics
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The White House sees extending the tax cuts as one of its legislative priorities. Democrats have argued that some of the measures should be allowed to expire to reduce the federal budget deficit.
Delaying action or leaving the issue unresolved creates uncertainty for investors trying to plan ahead, which "could be costly" and could slow economic growth, Bernanke said.
Greenspan has made the same argument, but he always adds that the tax cuts should be extended only if spending is cut by a similar amount so the overall deficit does not grow -- contrary to the White House position. Bernanke added no such caveat.
Bernanke also advocated reducing the federal budget deficit as a way to increase national saving and help shrink the nation's record trade deficit.
"The United States should work to increase its national saving rate over time, by encouraging private saving and by controlling federal spending to reduce the budget deficit," Bernanke said.
The administration's top economist also rejected Democrats' efforts to blame the Bush tax cuts for swinging the federal budget from a surplus in 2001 to a series of annual deficits since.
"The deficits that arose early this decade primarily, in my opinion, arose because of the decline in the stock market, the end of the Internet bubble, and on the spending side, from the increased costs for the war on terror, in particular," he said.
Bernanke also echoed Greenspan in arguing that the budget deficit be shrunk by first reducing spending "as much as possible . . . before we raise taxes, which in turn would have negative impacts on the economy."
Bernanke has said in the past that the Fed has a role in budget debates when the outcomes would affect the well-being of the national economy and financial markets.
The Fed "has the responsibility to be a nonpartisan adviser on general matters of macroeconomic and financial stability," Bernanke said in a June 2004 interview published by the Fed bank of Minneapolis. "So to the extent that deficits and debt are threatening macroeconomic and financial stability, the central bank is one actor that can provide advice and counsel to the fiscal policymakers."
Shelby praised Greenspan for addressing all types of economic issues. "I think the chairman of the Federal Reserve carries a large portfolio," Shelby said.
