Tax-cut rift stirs doubts on Greenspan's future

WASHINGTON: US Federal Reserve chairman Alan Greenspan may have thrown his future into question after a public break with President George W. Bush on new tax cuts, Republican sources and economists said, 

Some Bush allies were fuming after Greenspan bluntly told Congress in closely watched hearings this week that economic stimulus was not needed right now and warned of the dangers of rising budget deficits. 

“I think he’s getting old,” Grover Norquist, the head of Americans for Tax Reform, said of the 76-year-old Fed chief. 

Opposition Democrats, for their part, have pounced on Greenspan’s comments, which they say may have torpedoed Bush’s US$695bil tax cut plan. 

Norquist, along with Republican sources, said Greenspan’s stance also may have jeopardised his shot at a new term in 2004. 

“He didn’t do anything to help the president,” said a senior Republican congressional aide with White House ties. “You just wonder if he’s decided to go or if the White House has told him it’s time to go.” 

Despite the rising tide of speculation, however, the White House has dismissed questions about Greenspan’s future as premature. 

A few economists argue that Wall Street’s reverence for the Fed chief means the White House would be unwise to let its differences with him fester. And Greenspan did back the stimulus plan’s core provision for axing dividend taxes, so long as it does not hit tax revenues. 

Consultant Bert Ely said a big downside to replacing Greenspan was that he did not have an obvious heir, particularly since many potential successors thrown up by the rumour mill – such as former White House economic adviser Lawrence Lindsey – had since lost political clout. “Greenspan may have made a political calculation that he can get away with this and still stay on,” Ely said. 

The stimulus plan, already on shaky ground in Congress, is aimed at lifting the sagging US economy and faltering stock prices before next year’s presidential election campaign. 

But Greenspan said it was “premature” to apply a fiscal jolt before it was clear whether the economy was chiefly weighed down by worries about an Iraq war. 

After 15 years at the top of the world’s most powerful central bank, Greenspan faces the expiry of his current term as chairman on June 20, 2004 – in the midst of an election year. 

The White House admitted on Wednesday to the difference of opinion, but sought to play down its significance. 

In December Bush had forced out Greenspan’s long-time friend, Paul O’Neill, as Treasury secretary after O’Neill expressed similar reservations about the sweeping tax-cut plans. 

Wary of making more changes to the country’s economic management that could rattle markets already spooked by the drums of war, the White House would refrain from announcements about Greenspan’s tenure until later this year, sources said. 

But with Republicans in control of the Senate, some party sources say 2003 offers a rare window to hand pick a successor if Greenspan opts to quit before the election race heats up. – Reuters  

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